11 Mar 2010
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Market Outlook - 21st February 2010

15600-15300 is the key support zone

By Hitendra Vasudeo

Last week, the Sensex opened at 16186.90 attained a low at 16011.82 and moved up to a high of 16480.89 before it finally closed the week at 16191.63 and thereby showed a net rise of 39 points on a week-to-week basis.

The pullback retracement levels mentioned last week were 16485-16705-16952. Since the high registered last week was 16480.89, the Sensex has almost tested the first retracement level and fell to a low of 16074.58. The Sensex recovered on Friday to close at 16191.63.

On weekly chart, the Sensex has created a Doji Star candlestick pattern, which suggests that if the high of the Doji Star is not crossed then we could see a slide or sideways movement below last week's high of 16480. Along with last week's high, the resistance cluster is in the range of 16480-16553. Hence, till the resistance cluster is not crossed, further pull-back cannot be expected. If the resistance of 16553 is crossed, then expect the pull-backs to test the 16705 and 16952 levels. Sustainability is always an issue in a pull-back rally.

Our view that a pull-back of the fall from 17790 to 15651.99 is in progress still holds. The retracement level of the fall from 17790 to 15651 is placed at 16485-16705-16952. The perception is that if the pull-back comes into existence, then a lower top could be formed at either of the levels of 16485-16705-16952. Subsequently, it could slide back to test 15600-15300. On violation of the range, a further slide to 13219-12272 is likely. The range of 13219-12272 is the election gap. A small intermediate support could be witnessed at 14683 on a fall towards 13219-12272.

Sensex Wave Analysis

Count I -

Wave I - 2594 to 3758 ↑

Wave II - 3758 to 2904 ↓

Wave III - 2904 to 12671 ↑

Internals are as follows:

Wave 1 - 2904 to 6249 ↑

Wave 2 - 6249 to 4227 ↓

Wave 3 - 4227 to 12671 ↑

Wave IV - 12671 to 8799 ↓

Wave V - 8799 to 21206 ↑

Wave W-X-Y structure has developed

Wave W - 21206 to 8047 ↓

Wave X - 8047 to 17790 ↑

Wave Y- 17790 to 15651 (current ongoing move)

The Broad Market

The BSE Mid Cap index support continues to be at 6300-6275. A fall and close below 6275 can take BSE Mid Cap tumbling down. A rise and close above 6788 can bring about near term strength.

BSE Small Cap index has support at 8104-7776. A fall and close below 7775 can bring about a slide in BSE Small Cap Index. Resistance is at 8690. A breakout and close above 8700 will bring about continuation of the rise. Both BSE Mid Cap and BSE Small Cap have formed a pennant on weekly charts. A breakdown below the support level can bring about a sharp slide as we move into the Budget week. An event driven drift can bring about sharp volatility on either side.

Conclusion

The Sensex had a pull-back rise whereas the broad market indices had a pennant formation, which can bring about a slide if the support is violated once again. 

Strategy for the week

Traders can trade long on a rise and close above 16553. Those long need to exit the same on a rise from the current level to 16500. Support at 15600-15300 is the key support zone and a fall and close below it will show a sharp downward slide. Sell on fall below 15300 with 16553 or the high of the week, whichever is higher, as the stop loss

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