Last week, the Sensex opened at 16961.92, attained a high and fell to a low of 16187.03 before it finally closed the week at 16445.61 and thereby recorded a net fall of 548.99 points on a week-to-week basis. We had indicated the downside trigger of 16684, which worked well for short sellers as the market subsequently moved down to 16187. The Sensex is now heading down to test the stronger support levels of 15997-15650-15320.
On the weekly and daily chart MACD is below its trigger lines, which indicates the trend is likely to remain down. NSE India volatility index has started moving up. We had indicated that it was too low to remain at lower levels. A falling wedge breakout was seen earlier and it delivered the movement as was expected. VIX is likely to move higher towards 37 with resistance at 32 on the weekly chart.
ADX and ADXR as indicators are still crunchy and below 20 and show no willingness to move higher. Right now, both these indicators display no willingness to move up.
The Directional Movement Indicator on the weekly chart has triggered a Sell with D- moving above D+. But the ADX has start moving to show real acceleration.
Three Buddha pattern has been formed, which as per the Japanese Candlestick pattern concept, is very similar to the Head and Shoulder pattern of western technicals. If ADX on weekly chart starts moving up as Directional Movement Indicator has already delivered a sell the neckline violation of Three Buddha pattern is awaited. The neckline of the pattern is the trend line taken from its base points. The trend line is now at 15997.
The earlier bottoms of 15651 and 15330 can protect the market from a major slide immediately. These levels could be tested but may not be able to sustain below it unless a vertical slide is witnessed.
A vertical slide below the support base and the trend line all together can put the market in major discomfort. If any recovery is, therefore, to be witnessed, then it can be now or from the levels of 15997-15641-15330. If these levels are violated, then the projection of Wave Y as mentioned above will come into existence and may no longer remain a projection.
Coming back to Three Buddha pattern implication, the range of the channel as shown in the chart is 15650-17920. The difference is of 2270 points. The trend line and the neckline as shown in the chart is around 15997. A fall and close below 15997 at the end of the week can set a target of 13727.
Gann Angle is shown in the chart along with the Three Buddha projection, which is almost of the UP Gann Angle – 45 degree taken from the low of 8047.
When the ADX is moving down and below 20, traditionally the Bollinger Band comes into existence with our routine 21 day average with 2 standard deviation. Of the 2 standard deviation bands, the lower band is placed at 15905 and the earlier bottoms are at 15651 and 15330. The 21 weeks Bollinger Band slope has turned negative and the Bands show minor indication of expansion.
The neckline, Bollinger Band 2 standard deviation lower bands and previous higher bottoms are willing to protect the market downside. But for how long? The lower protection can create a pullback but should have the strength to take off to 18100. Any pullback leading to a failure and lower top formation is inviting further trouble for a downside torque.
The Broad Market
BSE Mid Cap Index: The MACD shows negative divergence on Weekly chart and has triggered a sell. It has violated the support of 6790 and closed below it.
The trend line support is visible and has managed to close above the same. On a further fall below 6600, downside momentum will continue. Resistance will be at 6766-6916-7037. The lower expected range can be 6538-6160.
BSE Small Cap Index: A negative divergence on MACD and sell is visible along with the trend line violation. Expect lower range of 8192-7622 to be tested with resistance at 8540-8763-9020.
Conclusion
The direction is down as the Sensex faces the next task of the support of 15997-15641-15330. The support can prove stiff for the bears. A fall and weekly close below 15997 along with the negative weekly candle (close<open) brings about another round of slide. Scope for support at intra-week or minor near term recovery levels could be seen if the supports are held. But the recovery is potentially expected to make lower tops on daily charts.
Strategy for the week
The overall objective remains to exit long and sell on rise to 16544-16901-17114 levels as the opportunity arises. The objective remains to exit long and sell at resistances with 18100 as the stop loss for target range of 13219-12256 with intermediate support points of 15997, 15651 and 15330.
Happy Investing
Happy Trading,
United we grow!!!
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