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Wkly Tech Analysis: Markets in oversold territory

According to the monthly Fibonacci charts, the Sensex is testing the quarterly support around 16,235

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The markets ended lower for the third straight week, amid global economic worries. The trended lower during the week, and finally settled with a loss of 538 points at 16,293. In the process, the index has plunged nearly 1,100 points in the last three   straight weeks.

Among the index stocks this week, Tata Power slumped nearly eight per cent to Rs 92.50. State Bank of India and plunged around seven per cent each to Rs 1,852 and Rs 1,843, respectively. Sterlite Industries, , , , Tata Steel, HDFC Bank and Mahindra & Mahindra were the other major losers. On the other hand, Bajaj Auto, BHEL and DLF ended with gains in excess of three per cent each.

According to the monthly Fibonacci charts, the Sensex is testing the quarterly support around 16,235. If the index is able to sustain above it, we could see a counter-rally to 16,730-16,900 odd levels. However, if the index breaks below 16,235, then we could see the index slide to its next major support around 15,850.

The bears continued their domination on the Nifty, as the index failed to cross its near-resistance at 5,130 mentioned last week. The index touched a high of 5,125, and then broke the psychological 5,000-mark, as it tumbled to a low of 4,906. The Nifty ended with a loss of 158 points at 4,929.

Select momentum indicators, such as the Relative Strength Index and the Stochastic Slow, are in oversold territories. Hence, the index looks due for a bounce in the near term. Similarly, the short-term (20-week moving average) has crossed the medium-term (50-week moving average) on the weekly charts, which again is a positive sign. However, the index is below its short- and medium-term weekly moving averages, which can neutralise the above effect.

The near-term bias is likely to remain bearish as long as the Nifty sustains below 4,940,   the lower end of the Bollinger Band. Going ahead, one should expect support for the Nifty around 4,815, which is the long-term (200-week moving average).

Bulls can be active either around the support levels of 4,815 or on a sustained trade above 4,940. Next week, the Nifty is likely to seek support around 4,845-4,795, while face resistance around 5,010-5,065.

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