Crucial trading week ahead

The markets have rallied for the seventh straight week and reached major hurdles on the weekly charts. As per Fibonacci charts, major trend reversals have taken place in the eighth or the tenth weeks of earlier trends. Hence, this will be a crucial trading week.

Volatility may remain the norm for the week. First, it is a holiday shortened-week. Second, there’s the F&O expiry. And lastly, markets are trading in overbought zones.

This week, the Sensex rallied from strength to strength and touched a high of 18,423. The BSE benchmark index, Sensex, finally ended with a gain of over three per cent at 18,289.

BHEL was the major gainer among the Sensex stocks. It zoomed nearly 17 per cent to Rs 303. SBI and DLF also logged huge gains in excess of 10 per cent each. Mahindra & Mahindra, Larsen & Toubro, Hero MotoCorp, Tata Power, Tata Motors, Infosys, Maruti and Jindal Steel were the other major gainers. On the other hand, Cipla slumped almost eight per cent to Rs 322. Reliance Industries and Coal India are the other notable losers.

As per its monthly Fibonacci chart, the Sensex has given a strong buy and now seems headed towards its R3 (Resistance 3) level on the yearly charts, which is 18,880. The trend for rest of the month will remain positive as long as the index remains above 17,900-level.

Next week, the Sensex is likely to face resistance around 18,580-18,760, while seeking support around 18,000-17,820.

The NSE Nifty moved in a range of 255 points. From a low of 5,351, the index rallied to a high of 5,607 and settled with a gain of 3.4 per cent at 5,564. In the process, the index has now gained 1,000 points since the start of the calendar year.

The index has ended a tad above its higher-end of the Bollinger band (5,558) on the weekly charts. If the index is able to sustain above 5,558 then we could see a steeper rally in the coming weeks. However, failure to sustain above 5,558 could be the first sign of a correction.

The Nifty has near-term support around 5,540 and 5,485, while the major support area would be around 5,430.

Select key momentum oscillators like the 14-day RSI (relative strength index), MACD (moving average convergence / divergence) and Stochastic Slow continue to remain in buy mode. Hence, the bias is likely to remain positive in the short-term. However, the ROC (rate of change) indicator has shown negative divergence.