Wkly Tech Analysis: 5,870 is crucial level for index

The markets started 2011 on a bearish note. Last week, I had mentioned that the markets tend to reverse in the fourth week at times. The markets did that, but the quantum of fall was mostly beyond expectations.

The markets, after a rather steady start on Monday, wherein the Sensex touched a high of 20,665, soon started to spiral downwards on the back of intense selling pressure in rate-sensitive stocks on fears of monetary tightening. The index tumbled to a low of 19,629, down five per cent (1,036 points) from the week’s high. The Sensex finally ended with a loss of four per cent (817 points) at 19,692.

Among index stocks, Bajaj Auto slumped nearly 15 per cent to Rs 1,317. Tata Motors tumbled almost nine per cent to Rs 1,190. ICICI Bank, DLF, SBI, ONGC, Larsen & Toubro, HDFC, Hero Honda, Sterlite, Bharti Airtel, Maruti Suzuki, Hindalco and Mahindra & Mahindra dropped five-eight per cent each. Tata Power, however, bucked the trend and moved up 1.5 per cent.

The Sensex is fairly close to its crucial monthly support level of 19,600 and a close below that could spell trouble for the markets. On the downside, the index may then test 19,300 and potentially slip deeper down towards 18,425. On the positive front, one can see strength re-emerging when the index closes above 19,500. The NSE Nifty moved in a range of 295 points; from a high of 6,179, the index tumbled to a low of 5,884, and eventually settled with a loss of 3.7 per cent (230 points) at 5,905.

The corresponding crucial support level for the Nifty is at 5,870, below which the index may slip to 5,770, after which a further fall to 5,500 looks likely. The Nifty, after trading on a thin line along its short-term (20-weeks) weekly moving average for seven weeks, has finally ended marginally below it. Hence, it looks like the bears may have the upper hand for the moment. Also, the momentum indicators favour a further fall.

While a bounce-back cannot be ruled out, the index will have to sustain above 5,935 in order to reverse the negatives.