Wkly Tech Analysis: Long-term support in sight

The markets started May on a negative note. Historically, May has been one of the most volatile months for the markets. In the last one decade, the Sensex has swung wildly in the month.

Since 2001, the markets have gained five times in the month with average return for the Sensex at 10.6 per cent. On the other hand, average loss for the index on the remaining four occasions was 9.9 per cent. This May, the Sensex has shed 4.5 per cent in the first week itself.

The markets succumbed to the global pressure. The Sensex started the month with a negative gap of 22 points, and has since struggled to find its feet. The index slipped below the 17,000-mark and closed the week with a loss of 4.5 per cent at 16,769.

Among the index stocks - Jaiprakash Associates fell over 17 per cent to Rs 130. DLF, Tata Steel, Reliance Infrastructure, ICICI Bank, Sterlite, Grasim and Tata Motors shed 10-14 per cent each. However, ONGC and Cipla ended with gains of nearly 3 per cent each.

Thanks to the huge fall, the Sensex is now extremely close to its long-term (200-day) moving average on the daily charts, which is around 16,630. It remains to be seen if the index is able to come back meaningfully from these levels. A pullback of 38 per cent (Fibonacci number) from a low of around 16,650 could see the index run up to the 17,200 level.

While the daily charts are in oversold zones, the weekly charts indicate further weakness and monthly charts are still in the positive zone. According to the weekly charts, next significant support for the Sensex is seen below 16,630 at around 14,500.

Next week, the index is likely to seek support around 16,440-16,340-16,240. On the upside, the index may face resistance around 17,095-17,195-17,300.

The NSE Nifty moved in a range 300 points. From a high of 5,279, the index slipped to a low of 4,985, and finally settled with a loss of 260 points at 5,018.

The Nifty is currently trading way below its short-term (20-day) and medium-term (50-day) moving averages of around 5,240 and 5,195, respectively. The long-term moving average is now at 4,965.

The nine-day Relative Strength Index (RSI) is in the oversold zone, at around 23 per cent. An RSI of less than 30 per cent is said to be oversold. Also, the MACD and Directional index are in favour of bears.

The weekly charts indicate, short-term moving average of 5,120, and medium-term average of 4,885. The bollinger bands suggest significant support around 4,750.

Next week, the Nifty is likely to seek support around 4,905-4,870-4,835, while may face resistance around 5,130-5,165-5,200.