4650 on Nifty key level to watch on downside: Louise Yamada

After all the gloom and doom talk last year of how 2012 will shape out, investors and analysts have to concede that the global economic outlook looks less dangerous today. We have had a fantastic January series where global equities have been constructive. The S&P and NASDAQ are close to their 2011 peaks already.

Louise Yamada, the managing director of Louise Yamada Technical Research Advisors says global markets are seeing some trading range behaviour and may have to prove whether or not they have stabilised enough.
The risk-on trade in Indian equities continues to play out strong. Yamada says the 5,378 level on the Nifty needs to be taken out for this rally to sustain going forward. However, she sees 4,650 as the key level to keep a watch on, on the downside. Below is an edited transcript of her interview on CNBC-TV18. Watch the accompanying video for more. Q: What have you made of the January rally? Technically, do you think it is sustainable?
A: The January rally has been constructive, I will certainly say. It has not completely turned around the negative monthly momentum divergences with the exception of the Dow Jones industrial average which has been essentially outperforming the rest of the world. Given the degree of the damage globally which ran down 20% to 43%, we needed some period of time for repair. Whether or not we have accomplished enough repairs to pick up and move onto new highs is still an outstanding question.
The Dow, S&P, the NASDAQ, are all addressing their 2011 peaks here. If they were to get through that today or over the next few weeks, then comes into play the 2007-08 peaks. But a lot of the global markets tested the 2010 lows, some of them broke it, some of them tested the 2009 lows. Given the degree of some of the declines, there is probably more trading range behaviour perhaps with some slight creeping up and then the markets will have to prove themselves as to whether or not they have stabilised enough. Q: What about the Indian indices - the Sensex and Nifty? What do you make of those charts post the rally?
A: Both the Nifty and the Sensex are in an interesting position here. They are just testing once again the downtrend line of the late 2010 peak. So the downtrend comes into place for the Nifty around 5,235, right around where it is trading now. The next higher price level comes in around 5,378. At the moment what we have in the Nifty is a series of lower highs followed by lower lows.
The downtrend aspect is still in place but if you can move up through 5,235 and the equivalent for the Sensex would be about 17,400 and then get through the first peak in price which would be around 5,378, then possibly you have eliminated the down trending behavior and start more of a repair process. The support for the Nifty remains around 4,650 if this follow through doesn