Markets in overbought zone

The markets rallied for the fourth straight week, owing to renewed buying optimism by foreign investors. The Sensex soared to a high of 20,119 in an extended trading week (markets were open on Saturday), before settling at 20,122, a gain of 547 points. As such, the BSE benchmark index has rallied 10.30 per cent (1,880 points) in the last four weeks.

Last week, among the Sensex 30 stocks, Hindalco and Tata Motors rose about eight per cent each to Rs 106 and Rs 308, respectively. ITC rallied seven per cent, while Hero MotoCorp, TCS, Dr.Reddy's, State Bank of India and Maruti rose four to six per cent each. Coal India fell 4.5 per cent to Rs 304. Sun Pharma, NTPC and Jindal Steel were the other prominent losers.

According to the monthly Fibonacci charts, the Sensex has given a clear 'buy' signal on crossing the monthly R1 (resistance 1).

The BSE index is now likely to test R2 and R3 at 20,240 and 20,420, respectively. As long as the Sensex sustains above 19,825, the bias for this month is likely to remain bullish.

On the quarterly charts, the Sensex has crossed the R3. This indicates a bullish bias for the next two months, as long as the index sustains above 19,850. In case the index slips below 19,850, the next trend-deciding level for the Sensex would be 19,460.

Next week, the Sensex is likely to move in the range of 19,750 and 20,490, with support expected at 19,895-19,825 and resistance at 20,350-20,420.

The NSE Nifty moved in a range of 186 points. From an early week low of 5,928, it surged to a fresh calendar year high of 6,115, ending at 6,107, a gain of 163 points. The short-term trend for the Nifty turned positive during the week, as the 20-DMA (daily moving average) crossed the 50-DMA. Most momentum oscillators continue to indicate a positive bias for the NSE index. The only major worry is the markets are in overbought zone; therefore, profit-taking cannot be ruled out.

According to the price and moving averages action, the NSE Nifty might extend the up-move to near 6,200-levels. Near-support for the index can be expected at 6,040-odd levels.

The 14-day relative strength index and the Stochastic Slow are in overbought zones. Any negative divergence for either could be an early sign of a correction.

To sum up, the Sensex is likely to test 20,240-20,420 in the near term. The bias is likely to remain bullish, as long as the BSE index sustains above 19,825. The Nifty might surge to 6,200-odd levels.