Wkly Tech Analysis: Key resistance at 5,895 level

In one of the sharpest rally in the last 21 months, the markets recovered significant lost ground of the November 8, 2010, to February 11, 2011 fall. The rally was so sharp that the Nifty gained 8.7 per cent in straight eight trading days at March end. In fact, this week, the index not only retraced the 50 per cent retracement level at 5,755 of the November-February fall, but also came within striking distance of the next resistance of 61.8 per cent at 5,895.

The NSE Nifty from an early low of 5,643, rallied sharply to a high of 5,872, and eventually settled with a gain of 172 points (3 per cent) at 5,826.

The Nifty after five trading days, for the first time on Friday, closed slightly below the upper-end of the Bollinger Band, which is at 5,840. The bulls will have the upper hand above 5,840, with the possibility of a rally up to 5,895. The 61.8 per cent retracement level of the November-February fall is the key resistance level for now. If the index is able to cross it we could see continued up move up to 6,100-odd levels. However, if the index fails to surpass this key level then we could see some kind of profit taking or correction in the coming days.

However, since we have cleared quite a few hurdles on the way up, the short-term trend is clearly bullish. First, the short-term moving average has moved back above the medium-term moving average, this has happened after four months. Secondly, the Nifty has also moved back above the 200-DMA, this has happened after just two months. Also, momentum indicators, although some of them are in the overbought territory, are indicating a bullish trend.

So in conclusion, the overall trend is up, with strong support around 5,700, the 200-DMA (Daily Moving Average). The index has stiff resistance around 5,895, which needs to be surpassed for further up move. A break beyond, 5,895 could trigger all-round buying with a possibility of the index retracing almost 100 per cent of the above mentioned fall — that can take the Nifty back to 6,300-odd levels.

Meanwhile, the Sensex rallied 3.2 per cent to 19,420 this week. DLF was the major gainer among the index 30 stocks, up over 9 per cent at Rs 271. Maruti, Hero Honda, Reliance Infrastructure, HDFC, ONGC and Bajaj Auto were up 6-8 per cent each. All Sensex stocks ended on a positive note.

As we are at the start of new month, a broader look at the trend, indicate support for the Sensex around 18,760-18,340 this month. On the quarterly chart, the support exists at 18,150 and deeper down at 17,350. On the other hand, monthly chart indicates resistance at 20,125-20,550, while resistance on the quarterly chart is placed at 20,730-21,530.