89-week EMA proves its worth; but will the rally sustain?

The opening session of the week began marginally lower for our domestic market, in-line with weak Asian bourses. However, post the announcement of domestic inflation numbers, there was a sudden spurt in the market. In Tuesday's trading session, the bellwether indices Sensex and Nifty, crossed last week's high of 18600 / 5611 and confirmed the bullish implication of the 'Spinning Top' pattern. In line with our expectations, we witnessed immense buying interest among market participants, which eventually resulted in a massive intraday rally of 2%. Similar momentum was seen again during Thursday's session as indices moved beyond the high of April 02, 2013 of 19061 / 5755, and closed at the highest point of the week.

Undoubtedly, the Banking sector played a major role in the week's huge rally. Capital Goods, FMCG, Auto and Realty counters also chipped in. On the other hand, the IT and Teck counters remained under pressure. The Sensex and the Nifty posted a mammoth gain of 4.24% and 4.60%, respectively, over the previous week's closing. Pattern Formation

- The '20-week EMA' and the '20-day EMA' are placed at 19012 / 5756 and 18723 / 5662 levels, respectively.

- The '89-day EMA' and the '200-day SMA' are placed at 19044 / 5764 and 18674 / 5661, respectively.

- The 'Lower Top - Lower Bottom' formation on the weekly chart is still intact.

- The weekly momentum oscillators and daily '5 & 20 EMA' have signaled a positive crossover.

- The 61.8% Fibonacci retracement level of the fall from 20204 / 6112 to 18144 / 5477 is placed at 19416 / 5870.

The week saw our benchmark indices rally independently, neglecting all negative developments across the globe. During the early part of the week, indices managed to cross the high of the 'Spinning Top' pattern and as expected, opened up the possibilities of further higher levels. As mentioned in our last weekly report, the Nifty moved towards the resistance level of 5755 (19061 for the Sensex) and closed marginally above it.

The bellwether indices have closed the week around the '89-day EMA' and the weekly '20 EMA' levels of 19045 / 5764 and 19012 / 5756, respectively. However, the weekly momentum oscillators and the daily '5 & 20 EMA' are now signaling a positive crossover. Hence, the possibility of maintaining this positive momentum is quite high. Any sustainable move beyond 19061 / 5794 would push the indices towards the 61.80% Fibonacci retracement level (19416 / 5870) of the fall from 20204 / 6112 to 18144 / 5477. This (19416 / 5870) is a strong resistance level for the market. Hence, we advise traders to book partial profits around this level and trade with strict stop losses for the remaining positions. However, in case of euphoric optimism, if the indices manage to stay above 19416 / 5870 levels, then they may even test 19755 / 5971. On the flipside, 18144 / 5477 remains a strong and crucial support level for our benchmark indices.

Source : Equity Bulls

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