Market awaits decisive price action: Vasuseo

Technical Analyst,  Hitendra Vasudeo:

Last week, the Sensex opened at 18361.65, attained a high at 18583.30 and fell to a low of 18058.71 before it finally closed the week at 18174.09 and thereby showed a net fall of 368 points on a week-to-week basis. The Sensex has formed a harami white, which suggests that if the 2-week high is not crossed then we are likely to see the 2-week high of 18736.97 as the lower top for time to come. This will put the pressure on the support of 17700-17295.

Against all sentimental and tragic news flows, the Sensex must cross 18736 and close the week above it. If that does not happen, then the lower support will be tested or will be violated to make a new low of the fall from the peak of 21108.

The high of 17182 on 25 February 2011 will offer support and so also the low of February 2011 that is 17295. If these supports are violated, then we may see a weaker March 2011 closing and probably see a weakness running to September-October 2011.

The Sensex needs to manage to hold the support in order to prevent the slide and we will have to bear with the volatility in the band of 17295-18736.

A cluster of resistances remain in the higher range with 200-day EMA placed at 18649, 200-day SMA at 18881 and 50-day SMA average at 18689. The 50-day SMA has moved below 200-day SMA. This would indicate that either we will continue to see sideways movement or give way for a slide as we are unable to cross the resistance from the averages. In this week, we may find 50-day SMA average violating the 200-day EMA also.

Enough supports are visible and only sharp and decisive move down or below can only change the range of the market with looks to be 17295-18736.

Now the Sensex has the tough job to cross this resistance not only during the week but close the week above it with a positive candle to extend the rise. Otherwise, the Sensex will form a lower top at this juncture to end wave x of Wave Y and open up wave y of Wave Y, which will have a downward direction. Wave y of Wave Y will unfold into another combination.

Weekly resistance will be at 18272-18486-18736. Weekly support will be at 17960-17436.

The Broad Market

BSE Mid Cap will have resistance at 6670 and support at 6353-6182. BSE Small Cap has resistance at 8149 and support at 7726.

The broad market indices also traded within the band without any decisive price action. Therefore, on the immediate front, the market looks to be sideways and contracted before the next round of decisive price action.

Conclusion

The Sensex is contracting on the daily chart before the next round of decisive price action.

Strategy for the week

Keep a stop loss pegged at 17700 to hold long positions and use the rise to the weekly resistance of 18272-18485-18736 as the opportunity arises. Re-enter long on rise and close above 18736 with the low of the day as the stop loss or 18058, whichever is lower.