prashant

Technical Analyst, Hitendra Vasudeo:

In last week’s update, we had indicated that further weakness was possible. The Sensex was expected to test the low of 14677 and the same was witnessed.

The Sensex opened last week at 15115.97, fell to a low of 14645.31 and moved up to register a high at 15337.10 before finally closing the week at 15189.62. It thereby showed a net fall of 2.46% on week-to-week basis.

As a result of the last week’s move, the Sensex has formed an indecisive doji formation. Its support range of 14677-14645 contains the immediate trigger points. On a fall and close below 14600, the Sensex may slide down to 13779.

Resistance during the week will be at 15337-15572. Rise and close above 15572 will initiate a pull-back rise to the last corresponding fall from 17735 to 14645 assuming at this point that 14645 is not violated.

In case of fall and close below 14600, the Sensex can slide to 13779 -13345-12671-12316. On the immediate front, the cluster of support ranges are 14700-14600, 13779-13345 and 12671-12316.

On the daily chart, the Sensex has a gap at 15337-15572. A breakout and close above this gap will confirm an near term reversal from the falling trend. The reversal can be for a pull back of the fall from 17497 to 14645. The pull back of the fall from 17497 to 14645 are placed at 15734-16071-16407. We could see a pull back to create a lower top against 17497 only to surrender the gains later and test the low of 14600 again and move below it.

The week, in which the Sensex attained 17735, it had formed an Engulfing Bear candlestick pattern, which has bearish implications. Also, the Sensex formed a Dark Cloud cover pattern in the month of May 2008 and this has bearish implication. As a result of these formations, we have seen the Sensex slide down to the 14645 level. The effects of these patterns were certainly witnessed as also the directional move that was expected.

On the monthly chart, the Sensex has taken support of the trend line taken from the low of 12316 and 14677 two weeks back. And last week, we saw that trend line getting violated and closes below it as well. Since the pattern formation is on the monthly chart, the closing on monthly chart will confirm the monthly Head and Shoulder breakdown.

Another observation on weekly chart: A trend line taken from 2904 and 4227 on the log scale chart. The Sensex took support when it had fallen down to 8799 and bounced up from the same trend line. Later, when the Sensex fell below 14667, the same trend line was violated. A recovery and pull-back rise was witnessed later. The Sensex pulled back to the same trend-line, crossed it for one week and next week it formed an Engulfing Bear candlestick pattern to surrender the pull-back gains to the low of last week at 14644.

From a weekly traders outlook, traders can cover short positions at the current level of 14777. Sell further on fall and close below 14600 with high of the week as stop loss or 15469, whichever is higher at the point of breakdown

Conclusion
Minor pull back is possible before a further downward move.

Strategy for the week
The overall strategy still remains to exit on a rally to Weekly resistance levels. Traders can benefit from trading opportunities to trade long but ensure to exit on minor pull-backs at weekly resistance levels.