Nifty having traded weak throughout the week ended the week with a negative closing for the consecutive fifth day. The Nifty opened at 5,227.25 and made a high of 5,254.50. The Nifty closed at 4,982.60, with a loss of 4.7% on a weekly basis. The Nifty made a low of 4,969.40 during the last week. The volume in the Nifty futures was at the low ebb during the whole week. The overall volume was moderate. Some stock specific action was seen during the last week. The Nifty May futures was trading with the modest premium and narrowed down gradually towards closing.
In the daily charts, the Nifty was not able to cross one of the crucial long-term average (100 day SMA) and traded weak. The Nifty lost the support of the 5, 10 and 20 day SMA. The reversal from the 100-day SMA is a bearish sign. In addition, the 5-day SMA is facing resistance near to the 200 day SMA and breached the 10-day SMA, during the last week fall. The Nifty closed well below the 13, 34, 89 EMA. The short term EMA`s are facing resistance near to the long term EMA. All these indicate short-term bearishness.
The 14, 3, 3 stochastic and RSI is moving down side, which are in sell mode. The 5, 3, 3 stochastic entered into a highly over sold zone. This may cause a weak relief rally
During the last week`s fall, the MACD generated a fresh sell signal. In addition, the Nifty lost the PSAR support level. The swing trade entered into negative zone. So far, the Nifty is forming a lower top and higher bottom formation since the January, 08 fall. The break out on either side will be more powerful.
However, the Nifty has a good support at 4,916 (with 1% variation) on many fronts.(The 50-day SMA, the trend line support drawn from the March 2008 low, 0.382 retracement support (from 4,468 and 5,299). Interestingly, the pattern is same as in October 2004, on many fronts. The previous pattern formation is also supporting the above statement. (In Sensex, the previous gap formed on 18 the April lie near to the same level.)
Based on the above rationale, the Nifty has the probability, to end the correction near to the level and may resume the upward journey. Any decisive breach of these levels will negate the above said view.
In the weekly charts, the Nifty formed a bearish reversal pattern. (Nifty futures and Sensex engulfing pattern) The 5, 3, 3 stochastic is in sell mode and above the 80 mark. Any further weakness may cause a sell signal in RSI. The MACD is converging to give a buy signal. Any further weakness will make the weekly trend further down. The swing trade entered into positive zone since the week ended 11/01/2008 and became neutral now. The last week`s ADX buy signal got failed in this week. The medium term trend is neutral.
The question in front of us is whether this correction is a technical one in nature or we had made short to medium term top. This will be answered with the Nifty breaching the crucial levels of 4,916 and 4,610 - 4,640, i.e if it manages to do so.
In the monthly charts, the MACD is in a sell mode. However, the bottom of 4,448 is becoming a strong support. Any decisive breach, will initiate a fresh down movement. The 20-month SMA is giving a good support since May 30, 2003 on a closing basis, which is currently placed at 4,653.83. In the quarterly charts, since October 2003, the Nifty is trading above PSAR. For this Quarter it is placed at 4,448.50.
Outlook for the week
Likely to get support near to 4,916 level and any failure may led to another 1% or 6% fall. Based on the above rationale, the Nifty is expected to see some more pressure in the initial move. On many fronts, the Nifty is near to the multiple support levels. Any failure will extend more correction. For this week, the Nifty has support at 4,916 (on many fronts may be a reversal point-with 1% variation), 4,850 and 4,623-4,646 (in the worst case) and 4,448.50. The Nifty has resistance at 5,035-5,058, 5,130, 5,179 and 5,279.
Strategy
Watch whether the Nifty is able to hold above the mentioned levels. On failure, exit long positions and create short positions. On the other hand either near to 4,850 or 4,623 create good long positions with suitable stop loss.
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