Market Outlook- 27 th July 2010
Market needs to sustain now
By Hitendra Vasudeo
Last week, the Sensex opened at 17914.12 attained a low at 17848.07 and moved up to weekly high of 18237.56. The Sensex finally closed the week at 18130.98 and thereby showed a net rise of 175 points on a week-to-week basis.
Index
In past weeks
White Candle
Black Candles
Net
Bull/Bear Control
Sensex
10
6
4
2
Bull Control
50
31
19
12
BSE Small Cap
8
33
17
16
BSE Mid Cap
9
1
36
14
22
The Bull/Bear Control table shows that all the indices are ruled still by the bulls inspite of the fear that bears could take the control at the earliest.
MACD shows an uptrend on daily and weekly charts. Now, we have to see how much strength the market gathers. Since the candle formation on weekly basis is not encouraging, we seek a further confirmation.
The 52-week ROC has moved down. Over the next 4 weeks, we do not have any big corresponding gains 52-week. Therefore, steady gains in the next 4 weeks can turn the 52-week ROC up.
The 14-week RSI and 52-week RSI both show upmoves. Therefore, the momentum for the Sensex to trade above 17800 may continue.
A structural change in Wave X will be seen. As a result of the rise above 18047, the internal structure of Wave X has altered but the same remains in existence. The day the end of Wave X confirmation is witnessed, Wave Y will begin for the final fall.
The Sensex wave flow since the low of December 1979 (We can connect with the RBI Securities Index, club with the Sensex and co-ordinate with the long-term Dow chart as the world cycle of market remains the same except for the Nikkei). In that case, we are trying to evaluate the full Sensex chart and let us see once again, where we stand. A couple of years back, we had done the Sensex Wave Flow by clubbing RBI Securities Index and Sensex).
Wave Tree
Month
Year
Remark
Wave I
Dec
1979
113
Feb
1986
656
Wave II
March
1998
390
Wave III
Jan
2008
21206
Wave IV
Currently in progress
Wave W
2009
8047
Wave X
A
2010
17790
B
May
15960
C
July
18237
25-May
31-May
16971
8-Jun
16560
3
21-Jun
17919
6-Jul
17395
5
23-Jul
With reference to the above Wave Tree table, Wave 5 termination can be confirmed below 17800. If that happens, then expect Wave C of Wave X to terminate or Wave 1 of Wave C of Wave X. For Wave 1 of Wave C of Wave X to remain in existence, 15960 must not be violated. If that case, Wave C truncation can be seen. On the assumption that Wave C could extend then on a fall below 17800, Wave 2 of Wave C of Wave X will be seen and the labels would change to roman numbers.
The 78.6% of the fall of Wave W is at 18439. If the Sensex rises beyond the same, then Wave 5 of Wave C will unfold into a micro internal for extension. Wave X can be 78.6% or equal to Wave W or can be 125%-138.2% of Wave W. Now, it depends on how the daily internal originates from hereon.
Weekly support will be at 18072-17906-17800. Resistance will be at 18296, 18439 and 18685.
The Broad Market
The BSE Small Cap index showed a long upper shadow, which indicates that profit booking pressure was seen. The high last week of 9558 will be an important resistance from hereon and further momentum can be seen above 9558. Expect minor sideways movement or near term correction or volatility between 9558-9285. BSE Small Cap index displayed 5 weeks of back-to-back gains and the sequence was violated by a negative weekly closing and long upper shadow.
BSE Mid Cap extends its 6 weeks of back-to-back weekly gains. Support will be at 7377-7300. Till BSE Mid Cap is above 7300, the trend could remain in place for mid caps.
Conclusion
Some weakness is seen in BSE Small Cap index whereas BSE Mid Cap remained comparatively positive. The gains were seen in large caps, which momentarily took control. Sustainability is always the key issue in a pullback corrective structure mentioned above in the Wave Tree.
Strategy for the week
Overall hold long positions with a stop loss of 17800. Below 17800, near term correction to sideways movement could be seen. Sell below 17800 with high of the week as the stop loss or 18237, whichever is higher.