Breakout confirmation needed: Vasudeo

Technical Analyst, Hitendra Vasudeo:

Last week, the BSE Sensex opened at 19389.74 attained a low of 18976 and moved up to 19695.98 before it finally closed at 19602.23 and thereby showed a net rise of 215 points on a week-to-week basis.

Resistance will be at 19811-19873. A breakout and close above 19873 can extend the rise towards 20224, 20996 and 22244. Support will be at 19424-19153-18976.

Last week, we had indicated to sell below 19100 but the fall below 19100 was short-lived and it closed for a day below 19100 but remained above it for the rest of the week. This has probably created a false breakdown and bounce from the retracement level of the rise from 17792 to 19811. The retracement level was at 19044 and the low made was 18976 and it closed the week strong above it at 19602. A lower shadow on the weekly chart is being witnessed now, which suggests support at lower range. Further weakness can be witnessed on a fall and close below 18900.

If the upper breakout and close above the resistance range of 19811-19873 is successful, then a rally is on the cards. If the breakout attempts fail or provide a false breakout, then it may put the pressure back on the support of 18900.

Violation of 18900 on a weekly closing basis may now result into a slide and the high registered in the last few weeks will be confirmed as the near term top or lower top against the earlier lower top of 20664.

The trend line resistance also hangs overhead as shown in the chart. On the daily chart, the 200-day SMA had offered support and the bounce has come off from it. The 200-day average is placed at 19104. The sequence of averages at this point does not confirm a rise but since averages are laggard, they tend to get aligned with price if the momentum sustains on the upper side. Importantly, the 50-day average is below both the 200-day SMA and 200-day EMA.

Secondly, the 200-day EMA is below 200-day SMA. The 200-day SMA is at 19104 and the 200-day EMA is at 18728 and 50-day SMA is at 18585. On the average concept and logic, the 50-day average has to be above 200-day SMA. Ideally, the 200-day EMA should be above the 200-day SMA.

In short, the Sensex needs a strong breakout and close above 19873 and should subsequently not violate 18900 to remain bullish from hereon for weeks and months to come. A post breakout fall below 18900 will turn the market very weak and it will be a big challenge to survive above 17295.

Broad Market

The BSE Mid Cap support will be at 7094-7079. Resistance is at 7310. If the supports are held and 7310 is crossed, then BSE Mid Cap index can move towards 7532.

The BSE Small Cap support will be at 8688. Resistance is at 8975. On a sustained rise and close above 8975, expect a rise towards 9258.

Conclusion

Last week provided some hope and promise of a near term upmove. A confirmed breakout is now essential. Any false breakout would spell deeper trouble for the market. If the breakout comes about then a big rally could get underway.

Broad market indices need to hold to last week