Pull-back in the offing

The market broke below long-term (200-day) moving averages amid growing euro zone fears. What's more worrying is that most major world markets, Dow Jones, FTSE-100, Nikkei, Hang Seng and Shanghai, are below their respective 200-day daily moving averages (DMAs).

It seems a repeat of January 2008, wherein the world markets collapsed under the US sub-prime crisis. The Sensex and the Nifty, after breaking below long-term moving averages, struggled around them for the next four months before the significant collapse in May 2008.

Our markets broke the 200-DMA just two trading days back. Hence, any bounce-back from current levels could be short-lived given the global worries. Incidentally, last time the Nifty broke below its 200-DMA, it was around these same levels of 4,800-4,900.

Given the recovery in the US markets, a gap-up on Monday morning is in the offing. However, the pull-back may be short-lived and we could be in for a choppy ride owing to derivatives-related pressure. More importantly, weekly charts now suggest that the Nifty may drop to 4,735 in the near term. While, a pullback could be as high as 250-300 points on the Nifty.

Next week, the Nifty may seek support around 4,830-4,800-4,770 and may face resistance around 5,030-5,060-5,095 on the upside.

The Sensex moved in a range of 813 points, and settled with a loss of 549 points at 16,446. The index has shed almost 9 per cent from its recent high of 18,047.

Among index stocks, Tata Motors slumped 13 per cent to Rs 710. DLF, Jaiprakash Associates, Sterlite, ICICI Bank, Reliance Communications, Grasim, Hindalco and Tata Steel plunged 7-10 per cent each. Larsen & Toubro and ONGC rallied around 5 per cent to Rs 1,608 and Rs 1,093, respectively.

The Sensex seems on course towards 15,400. In case of any substantial pull-back, the index is likely to face resistance around 16,950 and 17,080.