Weekly Technical Analysis - Jan 26 2009

The markets displayed a declining trend this week as the Sensex hit a lower high and low on each day. The index opened at 9,382, touched a high of 9,410, before slipping slowly and steadily to a low of 8,632 — an intra-week range of 778 points. The Sensex finally ended the week with a loss of 7 per cent (649 points) at 8,674. In the process, the index has now shed nearly 14 per cent (1,284 points) in the last three weeks.

Among the index stocks, Tata Steel, Mahindra & Mahindra and DLF slipped around 18 per cent. ICICI Bank, Ranbaxy, Hindalco, Maruti, Reliance Communications, Tata Motors, HDFC, Grasim, Larsen & Toubro, SBI, Reliance Infrastructure and Wipro dropped by 10-14 per cent.

This shows that the action was more stock specific, while the broader market slipped at a lower pace. This was unlike the January 2008 or October 2008 crash, when the broader indices too came crashing in line with the stock prices.

Under the given circumstances, many stocks, including index heavyweights, are in the oversold zone, while the index has not reached the oversold zone. The 14-day RSI (Relative Strength Index) of Sensex is still around 44 per cent. A RSI of less than 30 per cent is said to be oversold.

Secondly, the Sensex is close to its monthly S3 (support) of 8,580, and the quarterly support of 8,435. The October low was at 7,697. There seems to be a chance for the Sensex to find some support around 8,435-8,580. If it happens, then the index may form a slightly higher bottom for the time being. In case, the support zone is broken, then the index may tumble to the 7,550 to 6,700 levels.

In the coming week, the Sensex is likely to face resistance around 8,970-9,065-9,155, while it may find support on the downside around 8,380-8,285-8,190.

The NSE Nifty moved in a range of 207 points, from a high of 2,868, the index dropped to a low of 2,662, a fall of 207 points, and ended with a significant loss of 150 points at 2,679.

The Nifty is expected to find considerable support around the 2,575-2,625 levels. A sustained stay above the 2,755-mark will strengthen the index.

via BL