Wkly Tech Analysis: Nifty placed in a strong support zone

The markets registered heavy losses in the holiday-shortened week amid rout in equities across the globe. The US economy seems to be headed towards another recession, and fears of defaults in the Euro zone loom larger than ever before. Sentiment also soured due to the popular fight against corruption, which, many fear, may lead to a slowdown in foreign inflows.

The Sensex tumbled over 1,000 points from its early week high of 17,035. The index crashed to a low of 15,988 in intra-day deals on Friday. The BSE benchmark index finally settled at 16,142, with a loss of over four per cent (698 points). In the last four weeks it has shed a massive 13.8 per cent (2,581 points).

Among the index stocks, ICICI Bank and Tata Motors were the major losers, down over 11 per cent each to Rs 833 and Rs 713, respectively. Hindalco, Jindal Steel, SBI, DLF, Maruti Suzuki, Wipro, Sterlite, Infosys, Larsen & Toubro and HDFC were the other major losers. On the other hand, Hero MotoCorp rallied over five per cent to Rs 1,994. Coal India, up over two per cent, was the only other significant gainer.

The Sensex has broken one support after another, and in doing so, the resistance too has moved lower. According to the yearly Fibonacci charts, the trend will remain negative for the rest of the year, so long as the Sensex stays below 17,125-mark. On the downside, after having broken the 16,240-mark, the index is now likely to be headed towards 15,000-odd levels in the coming months.

This week, it is likely to seek support around 15,750-15,500 levels. And, on the upside, the index is likely to face resistance around 16,550-16,800.

The NSE Nifty tumbled 336 points, from a high of 5,132 to a low of 4,796. The index ended at 4,846, with a loss of 227 points.

One can see the resistance moving lower on the Nifty daily charts, if one draws a trend line from its recent high of 5,702 on July 26. The immediate resistance for the Nifty is now placed around 4,950. The index needs to break through this downward trend line to show any sign of consolidation or recovery.

The markets have been in a downward spiral for the last ten months, which is precisely the time they took during the 2008 correction. Secondly, the index is now close to its extremely strong support level of 4,835, on the weekly and the monthly charts. The Fibonacci time-wise and value-wise targets (as explained earlier), however, indicate a major bottom somewhere in the next 11 months.

According to the time-wise theory, the next bottom will register around the 21st month, starting November 2010. This indicates a period between June to August, 2012.

Similarly, according to the value-wise theory, we should get to a downside target of around 13,400-odd levels on the Sensex, and 4,000-odd levels on the Nifty. Hence, it would be interesting to see whether the Nifty can sustain around the 4,800 levels, and for how long.