The sensex made impressive gains last week. It opened with an upward gap at 4572 and moved in a 100 points range between 4570 – 4670 for most of the week before ending it with a gain of 1.43%. The volumes recorded on the BSE this week was the second highest in the year 2000. This just goes to show that a number of deals have taken place in the zone between 4550 – 4650.

The medium term trend in the sensex and the nifty continue to be up as we have not yet got any significant reversal signals. We need a fall below 4370 in the sensex before the medium term trend turns downward. So that can be the stop loss level (4350) for long positions. Close below 4550 will turn the short-term trend down.

The major cause of concern is the external influence of the NASDAQ. The TMT stocks back home can not remain unaffected if the NASDAQ goes in to a tailspin. The second concern is the concentration of activity in a handful of stocks yet again. The exit route becomes difficult in such cases and exacerbates the overall fall.

Some of the indicators in the daily chart are in the overbought zone. There is also a negative divergence in the 10 day ROC. So some weakness can be expected in the early part of this week. The extent of the correction will determine if the entire rally from 4143 has ended.

Inter day traders can start playing short again if the sensex does not rise much beyond 4700 today. Position traders can keep booking profits wherever possible and hold the rest of the long positions with a stop at 4350.

TODAY’S TRADING DAY

The opening to this week is not expected to be as bullish as the last. There can be a dip in the morning to 4641, 4624 or 4597. A recovery above 4580 will keep the sideways action between 4570 – 4670 going for some more time.

If things worsen considerably, the sensex can fall to 4566, 4517 or 4497.

Resistance for the day exists at 4676, 4730 and then 4795.

Published by Investwise. Phone : 022 572 1388. E-mail – [email protected]