Weekly Technical Analysis - Sep 27 2010

The markets continued to rise for the fourth straight week, though there was a lot more volatility. The BSE benchmark index, the Sensex, touched an intra-week high of 20,089, and then witnessed some profit-taking, only to bounce back and settle on a strong note at 20,045, up 450 points for the week.



In the process, the index has surged 11.4 per cent (2,047 points) in the last four weeks. Moreover, the index is now 5.5 per cent (1,162 points) away from its summit of 21,207 touched in January 2008. Whether the markets will scale new highs in this particular rally, or consolidate first and rally later, can be debated. However, for the moment, Monday’s close seem crucial for continuation of this four-week rally. If we see a negative close on Monday, the probability of the markets breaking its four-week rally will become high.

Meanwhile, this week, the rally was led by FMCG major Hindustan Unilever, up nearly 12 per cent at Rs 315. HDFC, Maruti, Hero Honda, ITC, Wipro and Tata Power surged five-seven per cent each. On the other hand, Reliance Industries and Jindal Steel ended with losses of over two per cent each.

The NSE Nifty moved in a range of 152 points; the index touched a high of 6,037, then slipped to a low of 5,932, before settling with a gain of 133 points at 6,018.

As mentioned in my last week’s outlook, the first signs of weakness would come from negative divergence on RSI and Stochastic Slow indicators. This week, we did see a negative divergence that is a lower low on both nine-day RSI and Stochastic Slow. However, one needs to wait for a confirmation in terms of a lower high. Hence, Monday’s close now becomes extremely crucial. A negative close could trigger a correction.

The magnitude of the correction can again be debatable as the Nifty has good support around 5,925. A break of 5,925 could see the index slide all the way to 5,800-5,700.