Market Now Making Base Before Starting the New Phase of Bull Run

The markets ended lower for the second straight week as rate hike fears, global cues and futures & options expiry weighed on the sentiment. The Sensex fell below 16,000 for a brief while and touched a low of 15,982. It eventually ended with a loss of 502 points at 16,358.

Sensex has broken the 16,100 support during the week, the trend becomes negative for the next next month as well. The index will have to overcome the 17,470 level to change its quarterly trend. One needs to closely watch the 15,380 level, as a breach of this level may change the long-term trend into negative. In the short term, the 16,900-17,100 range is likely to prove a major hurdle for the Sensex.

Next week, the Sensex is likely to face resistance around 16,700-16,805-16,915. On the downside, the index is likely to find support around 16,015-15,910-15,800.

The NSE Nifty moved in a range of 270 points, from a high of 5,036, the index dropped to a low of 4,766, and finally settled with a loss of 154 points at 4,882.

Momentum indicators such as the Moving Average Convergence Divergence and the Stochastic slow are in the oversold zone, while the 9-day Relative Strength Index and the Directional Index are indicating a pullback in the short term.

The Nifty long-term support is at 4,615, which is its 200-day Daily Moving Average. The Fibonacci retracement of 2009 indicates support at 4,180. Next week, the index may find support at 4,825-4,750-4,715, while it may face resistance around 4,985-5,015-5,050.

In the Monthly charts the MACD indicater for Nifty and Sensex are below 0 line. Now next month i.e. in Febuary 2010 the Market will consolidate and by the second week of March 2010 the market will start its next course of Bull Run just as it started in 2003.

Trendline broken Resistance at hourly averages

Today on Jan 22, 2010 Nifty has finally breached the major trend line support, where it had stopped yesterday after breaking out from wedge pattern. It took support at the low from where it started its final rally, which is also the close of the previous hammer candlestick pattern. Hence, 4943 was a crucial support which market did hold. Now, going ahead, 5170 remains a very strong resistance in the medium term and 5130 a strong resistance in the short term. Nifty has also posted a negative weekly close with strong volumes on futures and options front--one of the indicators that the index has begun its next move down.

In nutshell, the bounce if any will not be sustainable and hence should be used for going short. On the daily chart, Nifty is trading below its 20 daily moving average (DMA) and 40 daily exponential moving average (DEMA) i.e. 5211 and 5134 respectively, which are resistances in the near term. The momentum indicator (KST) has given negative crossover and is below the zero line. The market breadth was badly negative with 313 advances and 1,021 declines on the NSE and 842 advances and 2,043 declines on the BSE.

On the hourly chart, Nifty is trading below its 20 hourly moving average (HMA) and 40HMA i.e. 5214 and 5221 respectively, which are now the resistances in the short term. The momentum indicator (KST) has given positive crossover but is trading below the zero line.