Technical Outlook for 10 Mar 08

The Nifty traded weak, breaching crucial support levels. The fall on Monday and Friday was comparatively bigger. The Nifty opened at the high of week at 5304.45 and drifted down to touch a low of 4672.25. The Nifty closed at 4771.60, recovering almost 100 points from the low of the week. The Nifty lost 8.65% on a weekly closing basis. The Nifty, mainly taking weak global cues and due to the lack of buying support traded weak during the whole week. The Nifty March futures traded with a deep discount through out the week and closed with 52 points discount. The volume was at the low ebb.
Rationale
Daily charts
The Nifty witnessed some recovery towards the closing session on last Friday, However, the formation and closing was not so convincing to come to the decision that the Nifty had taken support on the trend line drawn from the low of March 2007. In fact, the Nifty closed below the trend line marginally. As the trend line is for longer period, normally we should need a decisive closing below the line or some 2-3 day's closing below the line.

On the concern side, the MACD in the daily charts generated a fresh sell signal. The swing trade in the daily charts turned to be negative. During Monday's fall, the Nifty breached below the PSAR. The RSI further diverged and in sell mode. Both the stochastic, are in sell mode. However, the oscillators are nearing to over sold zone, which may limit a further big fall. It may lead to bounce back with or without further fall. The short-term trend is negative as of now, with the possibility of some relief rally with or without further fall. The ADX is also in sell mode.

All the short-term averages are moving down. The Nifty is traded and closed well below the 5,10,20,50,100 and 200 day "SMA". In addition, the 5-day "SMA" breached the long term 200 day "SMA". This is a bearish sign. The 10-day "SMA" breached the 20-day "SMA". Both are coming down near to 200 day "SMA". Any further breach of 200 day "SMA" will make the situation further bearish.

The Nifty is making higher bottom and lower top formation so far. Any breach of previous low at 4448 will extend the cyclical bear market to extend further. Any breach of 4002 will change the cyclical bear market into structural bear market.

Weekly Charts
The Nifty made the lowest weekly closing since September 2007.In the weekly charts too; the Nifty is testing the trend line drawn from the low of June 2006.

The 5-week "SMA" is trading below the 30-week "SMA". The "14,3,3" and "5,3,3 Stochastic" generated a fresh sell signal. However, both are nearing the over sold zone. The "RSI" and "MACD" are in sell mode only. The medium term trend is weak.

Quarterly Charts

Since October 2003, the Nifty is trading above "PSAR". For this Quarter it is placed at 4002.20

Outlook for the Week

WEAK TREND PREVAILS WITH THE SUPPORT AT TREND LINES
Based on the above rationale, the Nifty's further move will be decided whether it is taking support on daily and weekly trend line or decisively breaching of them. The initial day's trades will answer to this question. If the Nifty is able to trade above trend line continuously, then it may see some bounce back. The rise will witness a cluster of resistance during the up move. Any decisive breach of trend lines will initiate the fresh weakness and may re test the previous bottom of 4448 or breach the bottom also.

The Nifty has strong support at 4777(2-3 days closing basis), 4635,4565 and 4448.The Nifty has resistance at 4810-4827,4845,4976,5011,5045-5089(strong for short term), 5209 and 5359-5390(strong for medium term).

Strategy
Traders should trade strictly with levels rather than assuming the trend. Preferably they look for derivative strategies. Investors can be at sidelines for the time being until the clear trend emerges.