Further strength only above 5,800

The markets ended the week on a strong note, thanks to renewed buying interest in rate-sensitives, following a drop in inflation. The Sensex touched a low of 18,144 early in the week, after which it surged to a high of 19,059. The index ended at 19,016 (up 774 points), the first time it ended above the 19,000-mark in about a month.

Among the Sensex 30 stocks, State Bank of India soared about 10 per cent to Rs 2,294. Bharti Airtel, Mahindra & Mahindra, ONGC, Larsen & Toubro and Maruti Suzuki were the major gainers, rising eight to nine per cent each. TCS and Wipro fell four per cent each.

According to the monthly Fibonacci charts, for the up-move to continue, the Sensex has to trade at more than 19,060, following which the index could rally to 19,300-19,430 levels. In case the Sensex is unable to cross 19,060, we could see a correction to 18,400-odd levels. Next week, the Sensex is likely to seek support at 18,665-18,450; it may face resistance at 19,365-19,585.

The NSE Nifty moved in a range of 294 points. From a low of 5,500, the index scaled to a high of 5,794 and ended at 5,783, a gain of 255 points. On the daily charts, the Nifty seems tantalisingly poised at the higher end of the Bollinger Band. In case it crosses 5,800 and sustain at above this level, the index could stretch the up-move to 5,850-5,950 levels. However, in case the Nifty is unable to sustain at above 5,800, we could see the index drop to its 200-day daily moving average---around 5,660.

Key momentum oscillators such as the moving average convergence divergence, the 14-day relative strength index and the Stochastic Slow are in favour of the bears. Therefore, the Nifty is likely to see considerable support on the down side. The longer-term trend remains bearish, and the downside target of 5,330-odd levels remains intact.

To sum up, the Sensex needs to break 19,060 for further gains and the Nifty has to sustain at above 5,800. Failure to do so could trigger profit-taking. However, the downside may be limited in the next week, despite the bearish outlook for the longer term.