Further weakness below 16,400

By Hitendra Vasudeo

Last week, the Sensex opened at 16907.57 attained a high at 17256.46 and fell to low of 16432 to finally close the week at 16839.63 and thereby showed a net fall of 466 points on a week-to-week basis.

A High Wave candle formation has been formed after the fall on the weekly chart, which suggests that a momentary pause to the fall is being witnessed with volatility. Unlike all the other candles we talked about earlier, this formation is neither bullish nor bearish. It is a neutral candle and is a single candle formation. The first rule for this pattern is that the real body must be small. Secondly, it must have a very long upper shadow and a very long lower shadow. Finally, high wave candles generally come after a large rally or a steep decline when there is a lot of emotion in the air. In this context, a sharp decline on the Sensex was seen. Psychologically, this candle indicates that the market is confused. It shows that the bulls and the bears have waged a fierce battle and the result is a draw. This means that sideways price movements can be expected.

Further weakness may be seen below 16432. Volatility will be between 16432 and 17256 during the week.  On a further fall below 16400, the slide will get extended towards 15960, 15650 and 15330 with the objective to move towards 13219-12256 range. If the recovery has to come before 13219, then it could be from the current level or by testing 15960, 15650 or 15330 levels. The recovery has to be so strong that it must cross the resistance gap on the daily chart which is at 17358 to 17664.

The possibility of a minor pullback remains in the attempt to test the gap and try to cover as much as possible. A strong close above 17666 may mark the low as the bottom. In that case, the objective would be to test the recent low of 19132.

Weekly resistance will be at 16842-17253-17305-17664. Weekly support will be at 16400 and 15604.

Wave Tree: