Further weakness only below 15800 on Sensex: Vasudeo

By Hitendra Vasudeo, Technical Analyst

Last week, the BSE Sensex opened at 16318.36, attained a high at 16390.33 and fell to a low of 15809.71 and closed the week at 16152.75 thereby showing a net fall of 140 points.
On Friday, 18 May 2012, we saw a gap down opening and recovered strongly to close above Thursday’s high. The low and high on Friday was 15809 and 16206 respectively. The rise from Friday’s low to Friday’s high was 397 points. This enabled the recovery on a weekly closing basis and limited the loss down to 140 points only. A lower shadow has been created, which suggests support in the immediate near-term. Further weakness may be seen below 15800 only. 
In the last few days, we had seen the rise like that we saw on Friday. But in the next few days, the gains turned into losses to show a further slide. If Friday’s low holds, then we may get a pullback. The pullback will be confirmed on rise and close above 16450 which is 23.6% retracement of the fall from 18523 to 15809. Expect the rise towards 16450. On a further sustained rise and close above 16450, expect a rise towards 38.2%, 50% and 61.8% retracement of the fall from 18523 to 15809. The retracement levels are placed at 16847, 17164 and 17483 respectively. This may account for a rise of approximately 6% to 11% on the Sensex. The expectation will be for another lower top against earlier peak of 18523.
Weekly resistance will be at 16425 and 17006. Weekly Support will be at 16117, 15844, 15800 and 15262.
Further weakness will be seen below 15800. If that happens, then expect a slide to test back the 20 December 2011 low of 15135. It could even move down towards 14700-14200 at least and may test it.
For the time being, the trend is still down but may look for a near-term pullback if 15800 is not immediately violated. Further, if this week is associated with positive movement and positive weekly candle, it will provide psychological comfort for a pullback rise towards the retracement level of the fall mentioned above. Conclusion
Near term possibility of pullback cannot be ruled out if 15800 is immediately not violated. Strategy for the week
Hold short position with a stop loss of 16500. Cover short position at support level of 16117-15844 range as the opportunity arises. Sell on fall below 15800 with the high of the day as stop loss or 16390, whichever is higher. Traders willing to take chances can buy on a weaker opening to 16117 and 15844 with a stop loss of 15800. Look at retracement levels of 16847 or above to take profits after taking long position.