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Positive divergence

Sensex ended the first month of January on a mildly triumphant note, having warded off a deeper plunge below 8500. Its 2 per cent monthly loss compares favourably with the deeper cuts suffered in other major global indices.

Positive divergence is visible in the weekly oscillators though they continue in the over sold territory. Daily oscillators are on the verge of entering the bullish zone. In other words, we need one more week of a strong up-move to nudge the index in to a medium term up trend.

Elliott Wave counts however are still advising caution. The sideways move from October 2008 trough appears to be forming a symmetric triangle with the 'E' wave in motion since the 8631 trough. This leg can end at 9760 or around 10200. A weekly close above 10700 is needed to make the medium term view positive. Investors can draw heart from the fact that the 8500 level has been a reliable support thus far. It may be recalled that even on October 27, 2008, Sensex closed at 8509 after testing 7697.

Resistances in the week ahead would be at 9548 and 9835. Investors should watch their step in the band between 9750 and 9850. If this zone is surpassed, the next target would be 10200. Supports are at 8800 and then 8631. Close below the second support will herald the end of the short-term up-trend.

Also Read: Week ahead: Sell on rally | Weekly wrap: Sensex gains 750 pts

Text & Images: Business Line