Weekly Outlook of Nifty From Jan 14th - Jan 18th

Last week it was explained that Sensex will face resistance from the top of 19800 and also from the resistance band of the upward sloping channel of 19900 and we saw that the top got arrested exactly between this at 19856.43. I had also explained about the consolidation/correction in Nifty between 5979-6065 what happened next? Nifty placed a high at 6059 and low at 5969 closing the week at 5977.

If one looks at the yearly chart one can see that the Sensex after posting a low on Dec 2011 at 15135  ended with a rise till 19612 by Dec 2012 gaining nearly 4500 points in a year.

For the past few months, the long term resistance zone between 19100 and 19800 has prohibited the index from moving higher, regardless of persistent buying by the FIIs but it always managed to receive good support from its 20 day EMA.

On looking at the weekly chart of the Nifty one can see it is still trading within an upward sloping channel for more than a year now. However the index managed to cross 6000 in the previous week but failed to move ahead. Nevertheless the volume spurt on the pullback is a concern, and it might be an indication that the break out above the resistance zone was a ‘false’ one. But the weekly EMAs are rising and Nifty is still trading above them, which is bullish.

Any further correction should find support at 5820 from the lower edge of the resistance zone and the rising 20 week EMA which is at 5744. Unless there are several negative surprises in Q3 results, 5744 level is doubtful to be violated.

Conclusion: The Index is continuing with upward moves within parallel channels and long-term resistance zones are hindering the upward momentum. The signals into near term are mixed. However there is investor enthusiasm in anticipation of cut in policy rates. Worst still seems behind and build up of strong base is in process for gradual recovery into short/medium term. It is possible that NIFTY is into near term consolidation/correction mode at 5800-6100.

However, profit booking is quite expected and I think one should bet on this correction as a possible opportunity to enter into good stocks. Nevertheless, the Option writers are gambling at 6100 strike price CE options and 5900 PE options indicating that a fall near 5900 and the 50 day EMA at 5860 can be a fruitful entry point targeting 6100. 

For the week, watch consolidation/correction at 5864/5910,  5980/6010 and further extension into 5820-6040.