Sensex likely to test 16,240 level

Markets witnessed one of the worst sell-off in nearly two years, as global economic worries took centre stage. The BSE benchmark index, the Sensex, tumbled below the 17,000-mark for a brief while on Friday, and ended the week with a loss of 4.9 per cent (down 891 points) at 17,306.

Among the index stocks, Sterlite Industries plunged over 11 per cent to Rs 142. Reliance Communications, DLF, Mahindra & Mahindra, Jaiprakash Associates, Jindal Steel, ICICI Bank, TCS and BHEL were the other major losers, down seven to nine per cent each. ONGC, however, bucked the trend, and ended with a gain of three per cent. Cipla and Hero MotoCorp were the only other gainers.

Technically and fundamentally, both, the road ahead is likely to be extremely painful. Technically because the markets have broken crucial support levels on monthly, quarterly, as also on the yearly charts. Similarly, worries of double-dip recession in the US will have a cascading effect on economies worldwide.

The Sensex, which dipped to a low of 16,991, has broken a key yearly support of 17,125. Although it managed to claw back and close above the support level, yet, it seems, further slides are likely.

If markets are to pullback from the current levels, the Sensex will have to deal with multiple hurdles on its way up. The monthly charts indicate strong resistance around 17,575-17,815. Similarly, the quarterly charts indicate stiff resistance around 17,600-17,900. And, worst, the sell-signal on the yearly charts indicate any pullback from the current levels is likely to face stiff resistance around 17,800 and 18,425 for the rest of the year. On the downside, since we have broken the 17,125 level, the Sensex is now likely to test 16,240-odd levels, or may even dip significantly to 15,000-odd levels in the coming months.

The Fibonacci time-wise correction indicates a major bottom somewhere in the next 12 months. According to the time-wise theory, the next bottom is supposed to be registered somewhere around the 21st month, starting November 2010. This indicates that the bottom may be formed some where between June 2012 and August, 2012.

Since time-wise, we are in 0.618 per cent correction mode. A similar value-wise calculation would give us a target of around 13,400-odd levels. The corresponding value on the Nifty would be around 4,000-odd levels. Given the time-wise and value-wise targets, it seems the markets are likely to drift lower (which is more painful), rather than crashing suddenly.

The NSE Nifty tumbled almost five per cent (271 points) to 5,211, after touching a high of 5,552 and a low of 5,116.

Apart from the long-term downside target of 4,000-odd levels, the short-term trend is likely to remain bearish, so long as the index stays below the 5,370-level. The medium-term charts indicate resistance around 5,500.

The markets are likely to experience significant weakness below 5,100-level, with immediate downside target of 4,830-odd level.