Near-term correction possible: Hitendra Vasudeo

Technical Analyst, Hitendra Vasudeo:

Last week, the Sensex opened at 20129, attained a high at 20203.66 and fell to a low of 19736.40 before it closed the week at 19781.19 and thereby showed a net fall of 322 points on a week-to-week basis.

We had suggested to book profits at 20300 or above. The high it made last week was 20203 and reacted with a negative candlestick pattern. On the weekly chart, we have witnessed an Evening Star candlestick pattern, which suggests that a near-term correction is likely or a halt to the recent rise or sideways volatility at the current level. In short, a minor correction is under process.

The daily chart shows the trend line breakdown indicating that the near-term correction is in progress.

The correction of the last rally from 15748 to 20203 is placed at 18498-17973-17448 respectively. A further rally may continue on a rise and close above 20203.

RSI on the weekly chart exited the overbought zone and the evening doji star indicates that the near-term top could be in place at 20203 unless a vertical rise and close above 20210 is witnessed.

Expect the lower range of 19610-19143 to be tested with volatility. Weekly resistance will be at 19907-20077-20210.

BSE Mid Cap Index

Further weakness in BSE Mid Cap index can be seen below 6831. An upside momentum and rally can be witnessed above 7400. Till then, a rise is to exit long and book profits in mid cap index stocks. In the mean while intra-day or couple of days trading rallies may be seen.

BSE Small Cap Index

The BSE Small Cap index looks for more correction but support could come at 6900. Downside acceleration would be seen in BSE Small Cap index. A rise and close above 7410 may resume the rally.

Long-term underperformance of the BSE Mid Cap and BSE Small Cap indices was visible once again in relation to the Nifty/Sensex.

Conclusion

We saw a strong negative candle on weekly chart last week. The Evening Star candlestick pattern indicates a momentary halt to the rise unless a vertical rise and close above 20210 is seen.

A near-term correction is likely. The correction can get deeper if another week of fall with a deeper negative candlestick is witnessed.

Strategy for the week

Exit long on rise to 19907 or above.  Traders can buy above 20210 or sell on rise to 19907-20077 with a stop loss of 20210. Expect the lower range of 19610-19143 to be tested with volatility.