Correction likely to continue: Vasudeo

Technical Analyst, Hitendra Vasudeo:

Signs of a correction were seen in the last two weeks without any significant dent in the benchmark indices. The fall from the weekly high to close at the lower level of the week confirms that the correction mode for the near-term is in existence. The correction can get sideways but the nature of movement is likely to be corrective in nature. Our expectation as headlined last week was for a correction before a new high is attained. The last headline was totally in keeping with the actual market movement witnessed last week. On western technicals a strong weekly downward bar reversal is seen.

Last week, the BSE Sensex opened at 20291.59, attained a high of 20854.55 and fell to a low of 20090.18 before it finally closed at 20125.05 and thereby showed a net fall of 125 points on a week-to-week basis.

Candlestick Check Up

(a) Daily Chart

In the last 10 trading days, we had 3 white (positive) candles and 7 black (negative) candles, which suggest that the correction is likely to be on and that the bears are trying to wrest control as the market had rallied in the last few weeks. In the last 50 trading days, we had 26 white (positive) candles and 24 black (negative) candles, which is balanced at this point. As far as the extreme near term is concerned, the for sideways movement is for a retracement/correction of the last corresponding rise.

(b) Weekly Chart

In the last 10 weeks, we have 7 white positive candles and 3 black negative candles, which shows that the bulls are still in control. In the last 50 weeks, the bull domination is visible with 33 white positive candles and only 17 black negative candle.

The message from the candlestick check-up is that the extreme near term sideways to correction move cannot be ruled out. The weekly candle has the long upper shadow and its closing is below the previous week?s close. This definite bearish behaviour significantly occurred at the high point of this rally.

Weekly Support will be at 2000-19800. Resistance will be at 20264-20438-20854.

The retracement of the rise from 17819 to 29854 is placed at 19692-19332-18973. None of these retracements are likely to be tested before making further attempts to move higher.

The Broad Market

The candlestick movement in the last 2 weeks in BSE Mid Cap index is not encouraging, which straight away suggests that profit booking is being witnessed. Traders and investors need to book profits before getting into new positions. Resistance will be at 8500-8650, which seems unlikely to be crossed before a correction.

On a back-to-back week, we have a shooting star candlestick pattern that suggests near term exhaustion in the BSE Small Cap index. Resistance will be at 10900. The BSE Small Cap looked better during the week but profit booking pressure reduced its gains. BSE Small Cap can accelerate up, if the resistance of 10900 is crossed. In that case it can race towards 11800.

Conclusion

Correction possibility remains before making further attempts to move higher.

Strategy for the week

Hold long positions broadly with a stop loss of 19800. Traders can book profit on rise towards 21206.

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