Wkly Tech Analysis: 17,500 key level for an upmove

After a promising start, key indices first witnessed an upside breakout, and then crashed due to derivatives expiry and the Dubai debt scare.

The Sensex touched a high of 17,290, and then slumped to a low of 16,210, down 1,080 points from the week’s high. The Sensex finally closed the week at 16,632, down 2.3 per cent (390 points).

Among the index stocks — Hero Honda surged nearly 6 per cent to Rs 1,746. ACC, Hindustan Unilever, Grasim, Sun Pharma and Maruti were the other major gainers.

On the other hand, Jaiprakash Associates slumped 8 per cent to Rs 215. DLF fell 6.5 per cent to Rs 351, and Reliance Infrastructure shed 5.5 per cent at Rs 1,039. ICICI Bank, Infosys, HDFC, Reliance Communications, SBI, Wipro, NTPC, Sterlite, TCS and Larsen & Toubro dropped 3-5 per cent each.

Last week, I had mentioned that the indices were still in a confused state and need to give a clear directional breakout. Unfortunately, the breakout took place either way.

The Sensex needs to cross the October high of 17,493 soon enough to ensure that the upmove continues. A failure to do so could see the index drift towards its recent low of 15,330.

The monthly oscillators are indicating that the current trend is weakening. Hence, any upside will be difficult to sustain. The downside target for the index is around 13,500 in the coming months. Contrarian view suggests that if the Sensex sustains above 17,500, then it can potentially rally up to 19,200. In short, the key levels for the Sensex is 15,330 on the downside and 17,500 on the upside.

The Nifty touched a high of 5,138, and a low of 4,807, before settling with a loss of 111 points at 4,942. Its failure to register a new high suggests bulls are losing steam.

The Nifty has closed near its short-term and mid-term moving averages, which are around 4,938 and 4,974, respectively. The Moving Average Convergence Divergence (MACD) too is likely to become bearish. The ADX (directional index) has already given a negative divergence.

Next week, the index is likely to face resistance around 5,070-5,105-5,150. The index may find support around 4,815-4,775-4,735.

The weekly charts suggest that the Nifty needs to break above the 5,235 level for a fresh upside. On the downside, the Bollinger band suggests support around 4,365.