Weekly Technical Analysis - 04 Feb 2008

Weekly Technical Analysis - 04 Feb 2008

Top Stories of the Week
Sensex holds 200-day EMA, though closing marginally down for the week.
RBI's monetary policy maintains rates at existing levels.
US Fed cuts interest rate by further 50 basis points.
New house sales hits 12-year low in US.
Govt raises FDI limit in seven sectors.
NCAER raises GDP forecast to 9.1%.
UBS reveals further $4 billion write down on its portfolio.
IPOs feel pressure, Wockhardt Hospitals lower price band.
15332 proves a bottom as suspected, Sensex may watched at higher levels however
Last week I argued, “At the low of 15332, Sensex saw a 30% cut from the top of 21206. The previous two cuts during ‘2004 (from 6250 to 4227) and ‘2006 (from 12671 to 8799) had also measured 30% … There is a high probability, that we have seen the low, at least for the short term."However, I also argued that "the yearly channel has been cut marginally, and we are still to complete the May-bottom cycle. Further, ‘2008 happens to be sitting on the 8-year cycle … We should, therefore, trade for short-term for the time being, watching the market, which is currently at 50% correction level to the fall.” I noted that the fall had become larger that the previous drop, and contended that “The current fall has, therefore, certainly damaged the positive bias that the structure showing since Oct'07 …"Sensex hit 50% correction level, once again, in the beginning of the week, but reacted later, as feared. The last day recovery brings it back up to test the same correction level. For the coming week, we’re ready to stretch the upper band to 18465 / 18660 / 18886. Watch, however, for resistance at any of these levels.Based on the May-bottom cycle, I argued that “Time-wise, this may keep the market under pressure till at least Apr-May of this year …” Any reaction from the upper levels mentioned above can, therefore, bring the market down to test the recent lows once again. We should, therefore, continue to trade for short-term for the time being, watching the market for resistance at higher levels mentioned.As I mentioned last week, “The previous two violent drops during ‘2004 and ‘2006, I had taken as “a” of Running Triangle. Pending the May-cycle, however, I would like to watch the market more, before taking that call.”For the time being, Index could be largely trading range-bound, holding its head above the 200-day EMA, and protecting itself from falling into the long lower shadow on the candle which hit 15332. The upper band may be stretched to the levels mentioned above.