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Sensex probes deeper into resistance PDF Print E-mail
Written by Our Staff Writer   

April 6, 2010: There was rejoicing on Dalal Street yesterday on the break out of the Sensex from 17750 resistance area. But as they say there is a time to be aggressive and a time to be cautious.

Now is the time to be cautious and the reason is simple. All that Sensex did was probe deeper into a key resistance area. Let us take a look at the Sensex chart below. Prices closed above the  resistance area marked by the blue horizontal line at 17791. However, look to the left of the chart and you'll notice that index is just going deeper into the base of the earlier fall. The area is shown by a blue arrow.

Long traders should ideally have tight stops below the previous day's closing price to lock in profits. Trades by a cautious player now would be extremely short term given the fact that the market has not given a clear intention of its future direction. Also given the rally of the past one year it would be more prudent to book profits on long positions and begin establishing some short positions. If markets clear the 19,000 mark it has the potential to rally and test the all time highs.

Keep a close eye on the 18,376 level shown by the upper blue horizontal line. It's 786 Fibonacci retracement area, which often leads to correction in the trend. Also the 50-day moving average shown in green is coming close to the 200-day moving average shown in red looks ominous. If the 50-day crosses below the 200-day average, it's a bearish sign. 

However, from the bulls point of view the market is still strong as it continues to make higher highs and higher lows as shown by the green arrows. But you'll notice that the falls are getting sharper and rallies slower, indicating a slow weakening of the bull.

Given the fact that the markets are in a resistance zone, it would be unwise to expect for strong rallies. The cautious traders would also not go short as market has not given a signal that it's going to turn. However, pickers of market tops and bottoms would be getting ready to book profits on long positions and short the market.

Chart Analysis

Sensex probes resistance