Wkly Tech Analysis: First two months crucial for 2011

The markets last week ended not only the week but also the month, the quarter and most significantly the year on a high note. What looked like a lacklustre week of trade eventually turned out to be a profitable week as the indices gave an upside breakout. The Sensex scaled to a high of 20,552, and finally settled with a gain of 435 points at 20,509. In the process, the index has gained exactly 1,000 points in the last three weeks.

The index was also up 988 points for the month, and just 440 points for the quarter. However, we did end the year on a high note — up 17.4 per cent (3,044 points).

As we are now at the start of the year 2011, it may be recalled that the same time last year while writing the yearly forecast, I had mentioned the possibility of the Sensex re-testing new highs, and possibly targeting 21,090. (Refer edition January 3, 2010). The Sensex indeed touched a high of 21,109 in the month of November 2010.

At the onset, I would like to say the first two months — January and February — are very crucial in terms of indications for the year 2011. A negative close in these two months could spell trouble for the markets and a huge sell-off cannot be ruled out then.

On the positive front, the reverse also holds good promise. But for that to happen, the markets should continue to trade above the 20,000-mark for most part of the January. Talking about levels, the Sensex may scale 22,600-23,250-23,900 on the upside. While in the case of a down move, the index is likely to seek support around 18,400-17,800-17,125 this year.

Coming to the monthly levels, the Sensex may face resistance around 21,075-21,425, while on the downside the index is likely to seek support around 19,945 and 19,600.

Since we have already seen three successive weeks of gains, this week becomes crucial in terms of the longevity of the upmove. As per the Fibonacci series, the rallies tend to terminate at the end of either fourth, eight or tenth week. If the markets are able to end higher for the week, then the overall bullish structure may remain bullish for the entire month. This week the Sensex may face resistance around 20,725-20,860 and seek support around 20,300-20,155.

The NSE Nifty moved in a range of 165 points, the index touched a high of 6147 and ended the week with a gain of 123 points at 6135. The index appreciated almost 18 per cent (933 points) in the year 2010.

Key levels to watch for the Nifty in 2011 are 6770-6965-7165 on the upside, while on the downside they are 5500-5300-5100. For the month, the index may face resistance around 6300 and seek support around 5970-5870.