Weekly Technical Analysis - March 29 2009

In a surprise rally last week, the markets posted significant gains on the back of continued fund buying, positive global cues and heavy short-covering. The Sensex surged past the 10,000-mark after a gap of nearly three months to end at 10,048 – up over 12 per cent (1,082 points) for the week.

Among the index stocks, Tata Steel zoomed 27 per cent to Rs 224. ICICI Bank, HDFC Bank, Sterlite, SBI, Reliance Infrastructure, Tata Motors, Tata Power, Larsen & Toubro, Reliance Communications, Hindalco and Reliance soared 16-19 per cent each. The remaining index stocks also ended with gains in the range of 3-13 per cent each.

The rally has been so sharp that the index crossed quite a few hurdles effortlessly – an important one being 9,650. The short-term trend for the Sensex will remain bullish as long as the index stays above this level.

The momentum is clearly in favour of the bulls. However, with the markets in overbought zone, chances of profit-taking in the near term are quite high. The depth of the correction, if any, will be very important as it will reveal the future trend of the market. Hence, the next few trading days will be very crucial.

Ideally, the index should consolidate around the 9,650 level in case of a correction so that the current uptrend remains intact. The picture should be more or less clear by the end of next week. In fact, the Sensex may test its January high of 10,470 on the upside, while support on the downside could be at around 9,635-9,375.

The NSE Nifty moved in a broad range of 316 points. From a low of 2,807, the index rallied to a high of 3,123, and finally ended with a gain of 10.7 per cent (302 points) at 3,109. In the process, the index has posted its third straight weekly gains and is now up 17.4 per cent (489 points).

This has been the longest winning streak since the July-August period in 2008, wherein the Nifty gained 12.8 per cent (514 points) in five straight weeks. The length of the rally and the quantum of the gain has made the index overbought. Hence, profit-taking or a pause at current levels seems quite obvious.

However, the index seems to have legs that are strong enough to take it higher by another 200 points from current levels in the coming days. The Nifty is likely to face resistance at around 3,230-3,305, while it may find support at around 2,990-2,915.

The index has ended at the higher end of the bollinger bands at 3,100-odd levels. A strong surge past this level will definitely expand the bollinger bands, and the next target for the index would be long-term simple weekly and daily moving averages (DMA). The weekly average is at 3,750 and the 200-day DMA is at 3,485.

The 9-day RSI (Relative Strength index) is in overbought zone at over 82 per cent. A market is said to be overbought when its RSI is over 70 per cent.