Technical Analyst, Hitendra Vasudeo

The Sensex last week opened at 17687 attained a high at 17735.70 during the week and fell to a low of 16678.94. The Sensex finally closed the week at 16737.07 and thereby showed a net fall of 862 points on week to week basis. As a result of the weekly movement, the Sensex has also formed an Engulfing Bear candlestick pattern on the weekly charts which suggest that if the high of 17735 is not crossed at the earliest we can see a sustained fall in the market.

The entire expected weakness can be eliminated only if the high of the Engulfing Bear weekly candle is crossed and preferably a close above it will confirm further strength in the market. The high of the Engulfing Bear is 17735.

Last week, we had indicated that fall and close below 16978 can terminate the pull-back rise. Since its low of 14677, the Sensex had not fallen below the previous week’s low. Last week, we saw that happen, which is an indication of the termination of the rising upmove from 14677 to 17735.

Further, any fall from hereon can either create a higher bottom to rebound back to test the high of 17735 or to cross it or to make a lower top. In both these situations, the subsequent result is a slide.   It is a situation of now or later and it ought to happen.

Weekly resistance will be 17050-17422-17735. Weekly support will be at 16365-15308-14677.

If the Sensex creates a higher bottom of the rise from 14677 to 17735 and moves to cross 17735 then expect the rise to get extended towards 18193-18426.

Till the high of 17735 is not crossed, every rise will be a rise to create a lower top to surrender the gains. A slide to a lower range will possibly test the low of 14677.

Strategy for the week

Exit long positions and sell on rally to 17050-17422 with a stop loss of 17736.  Expect the lower range of 16365-15308 to be tested. Since the fall on Friday was sharp and long, we could see a some retracement to 17050-17422 before it slides down further.