Sensex to face resistance at 19905: Vasudeo

By Hitendra Vasudeo

Last week, the BSE Sensex opened at 20277.75, attained a high at 20444.61 and slipped to a low of 19568.49 before it finally closed the week at 19704.31 and thereby showed a net fall of 581 points on a week-to-week basis.

Support will be at 19367 and 18492.

Must Read - 3 things that drive mkts: liquidity, liquidity, liquidity

The 78.6 percent and 88.6 percent retracement of the fall from 21108 (May’10) to 15135 (Dec’11) are placed at 19831 and 20428 respectively. The high made last week was 20444 and it closed the week lower at 19704. Therefore, we can say that the retracement level of 88.6 percent has been well respected.

The candle movement shows a bear candle and the downward bar reversal seen on the weekly chart suggests that a correction is in progress for the near-term first of the rise from 18173 to 20443.

Retracement levels of the rise from 18173 to 20443 are placed at 19554, 19284 and 18989.

Resistance will be at 19905-20242-20450.

Further rally may be seen on rise and close above 20450. Till the level of 20450 is not crossed, the objective remains to exit long on the rise.

Stochastic has hit the overbought zone whereas the RSI has not reached the overbought zone on the weekly chart. Negative divergence on RSI and MACD is being witnessed now on weekly chart.

On the immediate front, we can assume that the current dip is part of the correction of the rise from 18173 to 20443. On a vertical fall below 18173, a major bear market will once again surface. Optimistically, think of the current slide as a correction before making a further attempt to move higher above 20450.

Extreme near-term traders need to look at minor pullback of the fall from 20443 to 19568 before making way for a correction down to 19284 or 18989.

Weakness will continue in the near-term below 19500.

BSE Mid Cap Index

Further rally may be seen above 6662. Use the rise to exit long from 6387 or above. Fresh long position in mid cap may be undertaken above 6662.

BSE Small Cap Index

Expect the lower range of 5708 and 5460 to be tested again. Upside can resume for the near-term above 6250.

Conclusion

Near-term correction/retracement is being witnessed.

Strategy for the week

Traders long can keep the stop loss at 19500 to hold long position. Use the rise to 19905-20242-20450 to exit long.