Correction may continue with volatility: Hitendra Vasudeo

Hitendra Vasudeo, Technical Analyst:

Last week, the BSE Sensex opened at 19860.97, attained a high at 19902.59 and fell to a low of 19414.80 before it closed the week at 19484.75 and thereby showed a net fall of 296 points on a week-to-week basis.

We had suggested profit booking two weeks back and mentioned last week about the near-term correction, which has materialised.

On the weekly chart, the RSI exits the overbought zone, the Stochastic exits the overbought zone and the MACD moved below its average which suggests that a near-term top is in place unless a sharp vertical rise and close above 20210 is immediately seen.

The trend line and lower channel line is being tested as shown in the chart. The earlier breakout point was at 19137. The higher bottoms were at 19149 and 18255.

Cluster of support could be seen in the range of 19150-18255 unless the slide gets vertically sharp below 18255 this week itself.

Weekly support will be at 19298-18811. Weekly resistance will be at 19600-19786-20274. Support and bounce from the lower range of 19298-18811 cannot be ruled out from the intra-week perspective. Overall, till 20210 is not crossed any rise is likely to create a lower top unless a vertical rise and close above 20210 is witnessed during the week. In that case, a higher top and higher bottom formation will continue since the low of 15135.

The fall from 21108 to 15135 was of 57 weeks. The rise from 15135 to 20203 was of 58 weeks. If the peak of 20210 is not crossed quickly and violates the support of 18250, then expect a major top to be in place. In that case, the fall can go on for the next couple of years in a sluggish manner. Therefore, it is essential that the Sensex moves higher as early as possible. Otherwise, a gradual drift down for a deeper correction could happen.

BSE Mid Cap Index
BSE Mid Cap index continues to slide. Expect the lower range of 6600-6495. A rise and close above 7027 may halt the slide and reversal from the correction phase could be seen. Till then, use the rise to exit long positions.

BSE Small Cap Index
A trend line breakdown has been witnessed in BSE Small Cap index. Only a rise and close above 7200 may bring back small cap stocks into action. Till then, small cap stocks will be under pressure. Rise in the BSE Small Cap index from the current level of 6783 to 7096 would be an opportunity to exit.

Conclusion
The correction may get extended if another bearish candle is formed with a closing below 19100. Bounce and support from 19300-18500 range should happen in the next couple of weeks. But it must generate equal power to cross the recent peak of 20210 on sustained basis.
Strategy for the week

We had indicated to exit long and sell at 19907 or above. The high registered last week was 19902 and it fell to 19414. Traders can exit long and sell on a rise to 19600-19786 with a stop loss of 20210. Ideally, a strong rise and close above 20210 may mark a reversal. Expect the lower range of 19298-18111 to be tested