Sensex will face resistance at 7818

In last week’s review, we had indicated about Sensex 7596 level, as it was an important level, which holds the market for a further up move. Last week, the Sensex opened at 7760.67 attained a low of 7559.80 and moved to a new high of 7857.97 and closed the week at 7767.49 and thereby showed a net rise of 13.49 points on a week-to-week basis.

As a result of this close at 7767.49, the Sensex registered weekly gains for 15 consecutive weeks. The weekly close has also been above the weekly open for 15 weeks now and shows overall all round strength for 15 weeks.

Coming back to the Sensex level of 7596, the Sensex last week violated this level and fell to a low of 7559.80. On the daily chart, once it closed at the same point of 7596 by closing at 7595. This cannot be considered a violation in the true sense as the Sensex subsequently moved up and recovered the lost gain in the latter part of the week. The weekly close is also above 7596 as the Sensex closed at 7767.49. Therefore, the violation of 7596 cannot be considered and the new downward breakout point shifts to 7559.

We had indicated of a likely minor correction of the rise from 7275 to 7844 last week. The Sensex retraced down to 50% of this rise to 7558 and touched a low of 7559 but bounced to cross the top of 7844. Thus the retracement level was well respected creating the support at 7558 as a significant and important support level.

The weekly trend has turned up after the weekly close on May 6, 2005 and is still up. It has not been violating the two weeks low and the weekly reversal value since then. Therefore, the weekly trend is still up and it will turn down on fall below 7559 during the week or if the weekly close is below the weekly reversal value of 7643.

We would once again like to focus on the trend line starting from Harshad Mehta top, and Ketan Parekh top registered in 1992 and 2002. The Sensex in the last two weeks has given a breakout on the weekly chart and sustained a weekly close above the trend line as well. The trend line value is around 7590 and the low of last week was also at 7596. Therefore, a fall and close below 7596 on daily and weekly basis could be the first alert for any reversal signs of the current rising weekly trend. Since the Sensex managed to remain on a weekly close above 7596, the importance of the trend line remains intact. Now the Sensex must not fall and close below 7558. If that happens, then we could see the violation of that major important long term trend. Till this trend line is in tact and the weekly trend is in tact, we can still hope for the market to move up to new heights. Volatility will be witnessed and it will play on the mind during the week.

After last week’s movement, the candlestick pattern on the weekly chart is indecisive as it has formed A doji star occurred (where a doji gaps above or below the previous candle). This often signals a reversal with confirmation occurring on the next bar i.e. next week as we are looking at weekly charts. The range is 7857-7559 and either side strong breakout would be the subsequent trend in weeks to come. That is what the pattern indicates. If the market moves down, then it would indicate a reversal of the current trend. But if it moves above, then the continuation of the rally with greater speed is possible.

As a result of the indecisive weekly candle, it is compulsory and important for the Sensex that it does not violate 7559. The Sensex must not fall and close below 7559 on a daily and weekly basis. If that happens, then we could see a reversal of the weekly trend as the 2 weeks low is 7559 and the weekly reversal value is 7643.

The Sensex must cross 7857, sustain and close above it in order to expect a further rise. In the event of a further breakout and close above 7847, then the Sensex could move towards 7893 at the least and to an outer extent to 8024. The support will be at 7596-7550.

In the event of a downward breakout and close below 7558 and confirmed weekly reversal we could see a correction of the rise from 6118 to 7857. The correction levels are at 7423 and 7193. These levels are 0.250 and 0.382 correction levels of the rise from 6118 to 7857.

Indices Intraday Daily Levels

Sensex: Resistance for the day will be at 7818 and 7909. Support will be at 7728 and 7637.
Nifty: Resistance for the day will be at 2380 and 2403. Support will be at 2358 and 2335.
Nifty Futures: Resistance for the day will be at 2373 and 2391. Support will be at 2353 and 23348.

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