Weekly Technical Analysis - Jan 11 2009

As the markets were attempting a break-out last week, it had to deal with major negative news in form of the Satyam fiasco. The Nifty, which made a promising start, faced resistance at 3,150, the upper-end of bollinger bands as mentioned last week.

From a high of 3,147, the Nifty slipped to a low of 2,810, down 337 points from the week’s high, on the back of deep cuts in Satyam, realty, metals, energy and telecom stocks. Interestingly, other IT stocks saw selective buying interest. The Nifty finally ended with a significant loss of 5.7 per cent (174 points) at 2,873.

From near an upside break-out, the index is now nearing a downside break point, with support at 2,835. A sustained stay below the 2,835 level is likely to trigger an accelerated down move.

Bollinger bands have now narrowed down to a range of 3,135 to 2,835. While the short-term trend is still up, as the short-term (20-days) moving average at 2,985 continues to remain above the mid-term (50-days) moving average at 2,866. However, the unfolding Satyam story and corporate earnings are likely to dictate the terms going forward.

The probability of a downside break-out seems more likely than that of an upside break-out. Hence, one can assume that the index is likely to meet stiff resistance around the 3,135-3,150 levels in case of an upmove.

This week, the Nifty is likely to face resistance around the 3,000-3,040-3,080 levels, while support on the downside could be around 2,745-2,705-2,665.

In case of a downside break-out, the Nifty may test either its quarterly or yearly support levels as mentioned last week. As per fibonacci calculations, 2009 could see the index move in a broad range of 1,400 to 5,500. In between, support could be around the 2,050 level, while resistance around the 3,800 to 4,500 levels.

The quarterly chart, for the January to March period, indicates a range of 1,900 to 4,050. While the monthly chart, indicates resistance around 3,165-3,230-3,300, support on the downside is likely around 2,750-2,690-2,625.

The BSE Sensex, slipped 5.5 per cent (552 points) to 9,406. The index moved in a range of 1,219 points, from a high of 10,470, the index tumbled to a low of 9,251.

Among the index stocks — Satyam was the major loser, down 87 per cent at Rs 24. DLF, Reliance Communications and Jaiprakash Associates slumped 22-28 per cent. Reliance Infrastructure, Ranbaxy, Larsen & Toubro, Reliance, Bharti Airtel and SBI shed 9-18 per cent. On the other hand, Grasim soared over 12 per cent. Mahindra & Mahindra, TCS, Maruti, HDFC, Hindustan Unilever and Infosys gained 6-8 per cent.

The Sensex is likely to find considerable support around the 8,600-8,650 levels. This week, the index is likely to face resistance around 9,870-10,015-10,160, while support on the downside could be around 8,940-8,800-8,650.