Weekly Outlook of Nifty from Nov 12th - Nov 16th

Last week it was mentioned that “On Technical chart NIFTY index has still not managed to cross 5720 level. Nevertheless it has at least moved above the trend line and formed a “Doji” candlestick (indecision). So the conclusion is though the technical chart is on the border of giving confirmation for upside movement, the derivative indicators have already started giving confirmed positive signals with an upper target of 5900.”

The smart rally in NIFTY from set short term base at 5580 lost steam at 5780 ahead of set objective at 5830/5940 correction from there found support at 5680 for weekly close at 5686.

The daily chart of the Sensex has now made two unsuccessful attempts to break out of the narrow 300 points range within which it has been trading for the past few weeks. The first was on Oct 30^th,  a downward break attempt due to the disappointment over RBI’s failure to effect a cut in repo and reverse repo rates.

The second was on Nov 7^th, which was an upward break out attempt, following euphoria over Obama’s re-election as the US President. Both break out attempts turned out to be ‘false’, as the Sensex reverted back inside the rectangular range.

The index is trading just below the resistance zone between 19132 and 19737 which has so far proved a tough hurdle for the bulls.Now the million dollar question would be; are the bulls getting exhausted by their repeated failure to overcome the resistance zone? Is the Sensex getting ready for a big fall? On the evidence visible on the chart above, the answer is ‘No’.

Observation on the chart suggests a period of consolidation below a known resistance zone in a bull market. Once the consolidation is over the Sensex is likely to gather the strength to climb above the resistance zone. Now, Why so? For there is more evidence supporting a bullish trend. As there are supports from trend line if that doesn’t work, there should be strong support from the ‘gap’ area, and below it, from the 200 day EMA. Therefore, a big fall in the Sensex can be ruled out for now. 

Technical indicators are looking weak, but not bearish. There is a negative divergence seen on Sensex at the top of 18973.

The weekly chart of the Nifty continues its sideways consolidation below the resistance zone. Weekly technical indicators are bullish but showing signs of weakness. The MACD is positive and above its signal line, but moving sideways. The ROC is also positive, and has crossed above its 10 week MA. The RSI and Slow Stochastic are inside their overbought zones, but dropping down a little.

The rally from the higher bottom of Jun ‘12 is however, the first leg of a new bull market. The ‘golden cross’ and the bullish pattern of higher tops and higher bottoms have technically confirmed it.

Conclusion: Chart of Sensex and Nifty are undergoing consolidations below known resistance zones after two ‘false’ break-out attempts. Use the opportunity to accumulate good quality stocks. However strong domestic cues are needed for extended bullish undertone beyond 5780-5830 while 5630-5580 stays firm. There is good value buying seen at 5630-5580 to retain bullish undertone into short term. For the week, let us watch 5630-5780 with extension limited to 5580-5830. It is traders market and considered good to buy at 5630-5580 and sell at 5780-5830 with tight stop on break thereof. There is no change in expectation of extended rally into 5940 on signals of monetary easing from RBI.