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WEEKLY TECHNICAL ANALYSIS: Correction seen ahead

This article was posted on Apr 19, 2009 and is filed under Market Outlook

Another good week for the equity market, and the Sensex has now rallied over 32 per cent (2,697 points) at 11,023. The index began the week on a positive note, touched a low of 10,719, and a high of 11,367 amid high volatility. The index finally closed the week with a gain of two per cent.

Among the index stocks — SBI zoomed nearly 15 per cent to Rs 1,306. ICICI Bank, BHEL, Sun Pharma, HDFC, Tata Motors, Larsen & Toubro, ACC, Mahindra & Mahindra, DLF and Maruti rallied 4-11 per cent each. On the other hand, Hindalco plunged nearly 7 per cent to Rs 59. TCS, ONGC, Infosys, Ranbaxy, Jaiprakash Associates, Sterlite and Tata Steel dropped 1-5 per cent each.

The Sensex has cleared all its near-term hurdles and has given a buy signal on monthly and quarterly charts. Hence, any decline or correction henceforth should be looked as an opportunity to enter the market. However, the scenario may change as and when the index drops below the 9,650-9,700 support level.

In the coming week, the index is likely to find support around 10,620-10,500. On the upside, the index may face resistance around 11,270-11,425. The immediate short-term target for the index remains at 12,600, above which the index may rally up to 14,800.

The NSE Nifty moved up 199 points, from a low of 3,312, the index rallied to a high of 3,511, and finally closed with a gain of 42 points at 3,384.

The index cleared the 200-DMA (simple daily moving average), but found it difficult to sustain around the 3,500-mark. For the up move to continue, the index should rally past the 3,500-mark as soon as possible. If it fails to do so, the index may see a small correction towards its short-term (20 days) and medium-term (50 days) moving averages which are placed at 3,100 and 2,900. However, according to Fibonacci calculations, the index is likely to find considerable support around 3,250.

The worrying signs for the index remains, the overbought RSI, MACD and Stochastic Slow – which are all indicating some sort of a correction in the coming days.

The index is likely to face resistance around 3,460-3,485-3,510 next week, while support on the downside will be around 3,310-3,285-3,260.

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