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Weekly Nifty View: Nifty recovers above trendline support, shows strength
Vidur Pendharkar 08 September 2012

Support of 5,190 points level is crucial

 

S&P Nifty close: 5,342.10

 
 
Markets Trend
Short Term: Sideways              Medium Term: Sideways                  Long Term: Down
 
The bulls finally succeeded in pushing the Nifty higher after it completed slightly more than 50% retracement of the recent rise from 5,032-5,448 points. We can see from the chart above that the benchmark has bounced from the 20 WMA and closed above the crucial trendline support (in blue). Last week’s recovery saw the Nifty gain 84 points (1.59%) but on significantly lower volumes, implying that this recovery requires some more crutches if it has to survive longer.
 
All the sectoral indices ended in the green. The sectoral indices which outperformed were CNX Media (+5.90%), CNX IT (+4.45%), CNX Realty (+2.66%), CNX Auto (+2.27%) and CNX PSU Bank (+2.10%) while the underperformers were CNX Metal (+0.82%), CNX PSE (+0.75%), CNX Finance (+0.67%), CNX Pharma (+0.56%) and CNX FMCG (+0.14%). The histogram MACD has moved lower but remains above the median level indicating that the bulls are in control.
 
Here are some key levels to watch out for this week 
• As long as the S&P Nifty stays above 5,301 points (pivot) the bulls will be in control.
• Support levels in declines are pegged at 5,256 and 5,170 points. 
• Resistance levels on the upside are pegged at 5,387 and 5,433 points.
 
Some Observations
The Nifty has completed slightly more than the 50% retracement levels of the recent rise from 5,032-5,448 points which was pegged at 5,240 points.
 
The ‘gap’ area between 5,246-5,260 was closed thus making the game slightly more even stevens at this moment even though the bulls hold the edge.
 
We are witnessing a big triangular movement in the Nifty on the weekly charts implying that unless and until we break-out on either side, this kind of dullness will continue with sudden spurts of activity in between.
 
We can see from the weekly chart above that the bulls defended the trendline in blue (pegged around 5,264) points thus retaining their control at least for the time being.
Now the trendline (in black) pegged around 5,420 points has to be taken out decisively on high volumes for the bulls to dominate.
 
Strategy
The bulls have succeeded in holding the Nifty above the crucial 61.8% retracement of the recent rise from 5,032-5,448 points as well as the 38.2% retracement of the rise from 4,770-5,448 points which are pegged at 5,190 points. This level is very crucial from a medium-term perspective and the bulls will have to defend it come what may, otherwise they will relinquish control. After the Fed it has been the turn of the ECB chairman to talk up the markets and they have succeeded in doing so, at least for the time being. Anyways the important level to watch out for now is the trendline resistance in black. One can expect a small correction from the 10th or 11th September but unless and until the 5,190 points level is broken there is no major scare for the bulls except the trendline support in blue (pegged at 5,300) which comes in play during the weekend. If the volatility increases slightly the market is a trader’s delight more than anything else as the boundaries at both ends are fairly clearly defined.
 
(Vidur Pendharkar works as a consultant technical analyst & chief strategist at www.trend4casting.com.)
 
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