On the verge of a fall as the bulls begin to falter?

Vidur Pendharkar 21 July 2012

Unless and until the 5,350-5,400 point’s area is taken out there is no cause for bullishness. Sell in rallies and stay away if you are only inclined to the bullish side

S&P Nifty close: 5,205

Market Trend

Short Term: Sideways Medium Term: Down Long Term: Down

After a flat open, the Nifty fell in the first half of the week into the “gap area” between 5,159-5,189 points when it hit a low of 5,169 points, but did not close the gap. On the 19th it opened with an upside gap but on the very next day the gap was closed, thus implying that it was just a flash in the pan. The Nifty finally ended below last week’s low, down 22 points (-0.42%) in the red. Volumes were, however, lower than last week implying that the bulls’ hopes are still alive, though barely.

The sectoral indices which outperformed were CNX Media (+0.93%), CNX MNC (+0.66%), CNX Consumption (+0.57%), CNX FMCG (+0.53%) and CNX Pharma (+0.33%) while the gross underperformers were CNX PSU Bank (-3.09%), CNX Realty (-2.62%) and CNX Auto (-1.60%). The histogram MACD has moved marginally lower but is still above the median line. One has to watch this closely, especially when it drops below the median line as the bulls will then be under tremendous pressure.

Here are some key levels to watch out for this week

• As long as the S&P Nifty stays below 5,211 points (pivot) the bears can breathe a bit easy. The trend seems to have turned sideways now.

•Support levels in declines are pegged at 5,163 and 5,122 points.

• Resistance levels on the upside are pegged at 5,252 and 5,299 points.

Some Observations

1. The Nifty has completed the targets of 5,098 (38.2%), 5,200 (50%) and 5,301 (61.8%) points retracement of the decline from 5,629-4,770 points.

2. After falling below 5,263 points the bears are finding it difficult to regain this level despite the international markets being in fine fettle.

3. We have completed 20 weeks from the recent high of 5,629 points. 21 weeks is a Fibonacci number hence it’s a make or break week for the bulls and one has to closely monitor the market from around the 21st of this month.

Strategy

The Nifty is finding it difficult to regain the 5,263 points levels in rallies despite the international markets doing well. Now it seems that the US markets are also on the verge of topping out and hence the coming week will be a break-or-make week for markets worldwide. The strategy to books profits in rallies has proved to be wise and one should continue with this. Unless and until the 5,350-5,400 point’s area is taken out there is no cause for bullishness. Sell in rallies and stay away if you are only inclined to the bullish side. There is a strong possibility that we could be in for some troubled times in the markets in the weeks ahead.

(Vidur Pendharkar works as a consultant technical analyst & chief strategist at www.trend4casting.com.)

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