Weekly Technical Analysis - Nov 1 2009

Continuing the post-Diwali trend, markets extended losses for the second straight week. In fact, bears had the upper hand throughout the week, with the Nifty declining 5.7 per cent (285 points) to 4,712. In the last two weeks, the index has shed 8.4 per cent.

This week, the index touched a high of 5,034 and tumbled to a low of 4,688, breaking quite a few significant supports on the downside. The Nifty is now below its short-term (20-day) and medium-term (50-day) simple moving averages. The short-term moving average is at 4,987 and the medium-term moving average is at 4,869.

In retrospect, a similar correction was seen in the June-July period, wherein the index shed 15 per cent in 22 trading days and dropping below its short- and medium-term moving averages. Quite a few indicators had turned bearish and oscillators oversold. Thereafter, the index staged a complete recovery in the next seven trading sessions.

Although this time the index has fallen just 8.4 per cent in ten trading days, the indicators (moving averages, trend lines and MACD) are suggesting bearishness while oscillators (RSI and Stochastic Slow) are in the oversold zone. The only difference is that the index timeframe and the correction have been smaller. With an eye on 4,650 as the near support, one should not rule out an August-like pullback. (For weekly support and resistance levels, see table)

However, given the lower earnings by quite a few frontline companies and global cues playing a major role, volatility may be the order of the day for some more time.

Technically, the trend, which is now down, could ee the index test its next major support around 4,640-4,500-4,350. Any rallies could see the index face resistance around its 20-day and 50-day DMAs (daily moving averages. The Sensex moved in a range of 1,134 points. From a high of 16,939, the index dropped to a low of 15,805 and finally ended with a loss of 5.4 per cent at 15,896.

The index has gone past its crucial support of 16,400-16,450, which may now act as a hurdle on the upside. Next support for the index is around 15,625, below which the index may drop to 15,165. The long-term support for the index remains intact at 14,800.

via BS