Decisive week in terms of short-term trends

Negative news flow continues to haunt markets. Global events — Euro debt crisis, China tightening fears and tension between the two Koreas — coupled with the bribe-for-loan scam shook the equity markets. The Sensex shed 449 points to settle at 19,137, with real estate stocks bearing the most of the brunt. The BSE benchmark index has slumped almost nine per cent (1,868 points) in the last three weeks.

Among index stocks, Jaiprakash Associates and Reliance Communications tumbled over 12 per cent each to Rs 106 and Rs 130, respectively. Reliance Infrastructure slumped 10 per cent to Rs 850. Sterlite, BHEL, DLF, Hindalco, Jindal Steel, Larsen & Toubro, SBI and NTPC dropped four-eight per cent. Information technology stocks, however, bucked the trend, with TCS and Infosys advancing over 2.5 per cent each to Rs 1,045 and Rs 3,041, respectively. Bharti Airtel and Wipro were the other prominent gainers.

According to the quarterly fibonacci analysis, the Sensex has given a sell signal on the charts. Hence, a pull-back from these levels could see a maximum of 20,070, while on the downside, the index is likely to test 18,630-18,300 in December. A break below 18,300 could see the index slide to 17,500.

The NSE Nifty moved in a range of 240 points. The index touched a high 6,020 and a low of 5,780. It finally settled with a loss of 138 points at 5,752.

The index has been declining, registering lower highs and lower lows for the last three weeks. The short-term trend is on the verge of turning negative as the short-term (20-days) moving average is currently at 6,087 and the medium-term (50-days) moving average is at 6,076. The trend is said to be negative when the short-term moving average dips below the medium-term moving average.

Over the last one year, the markets have seen corrections last up to only three weeks. Hence, the coming week is important. The Nifty has closed marginally lower than its short-term (20-weeks) moving average, which is at 5,772.

In the worst case scenario, the index has taken support at its medium-term (50-weeks) moving average or the lower end of the weekly bollinger band, for eg in May 2010 and February 2010, respectively. At present, the medium-term moving average is at 5,386 and the lower end of the bollinger band is at 5,167.

The overall trend, once again, suggests daily charts are in the oversold zone while weekly charts indicate more downside. Hence, one can expect two-way movement in the coming week as well.

The Nifty may face resistance around 5,850-5,870-5,900 and seek support around 5,660-5,630-5,600.