Weekly Technical Analysis - Oct 3 2010

After a shaky start to the week, the markets eventually ended with strong gains, thereby extending gains for the fifth straight week. The Sensex touched a high of 20,475, and finally settled with a gain of 400 points at 20,445. The index is now 750-odd points away from its all-time peak of 21,207.



The metal and capital goods stocks led the upward journey this week. Hindalco surged seven per cent to Rs 204. Tata Steel and DLF soared six per cent each. Jindal Steel, BHEL, NTPC, Tata Power and Tata Motors were the other major gainers. On the other hand, ONGC dropped over two per cent to Rs 1,406. Hindustan Unilever, ACC and Hero Honda were the other losers.

In the third week of September, I had mentioned that the Sensex may very well target 21,000 in the last quarter of this year. Going by the pace of the rally, it won’t be surprising that the index rallies past the 21,000-mark this month itself, as the index is just 750 points shy of the landmark.

However, we have seen negative divergence on the nine-day RSI and Stochastic Slow charts. This indicates that the upward journey from here may not be a smooth one and we could very well see some jitters. Some kind of correction or consolidation could very well make this rally even stronger going ahead.

The bollinger bands suggest resistance around 20,770 on the up side, while the short-term moving average indicates support around 19,550. Fibonacci charts indicate initial resistance of the Sensex around 12,560, above which the index may rally up to 20,925. On the downside, the index is likely to seek support around 19,580, and on further dip, around 19,215. The quarterly charts indicate resistance around 21,115, while support around 18,980.

The NSE Nifty moved in a range of 190 points. The index touched a high of 6,153 and finally settled with a gain of 125 points at 6,143.

Next week, the Nifty could face resistance around 6,215-6,240-6,260, while seek support around 6,070-6,050-6,025.