Weak breadth, easing momentum and a negative divergence could drag the Sensex down this week
The market continued to gain ground this week but the upwards momentum eased considerably. The Sensex closed at 3354.14 points for a gain of 1.55 per cent.
The Nifty was up 0.94 per cent at its closing value of 1056.2 points. The Defty gained 1.39 per cent as the rupee continued its irresistible surge against the dollar.
Breadth was definitely weak. Volumes dipped sharply this week and there was technical weakness evident across many sectors.
The ratio of advances to declines was negative by the weekend. There were clear negative divergences on momentum indicators. The indicators signalled 'sell' while the indices rose.
However, the BSE 500 continued to rise, lifting 1.05 per cent on extremely reduced volumes. The Nifty Put-Call ratio remained in a somewhat overbought zone at 0.4.
Outlook
A correction next week seems marked if one believes the weak breadth and momentum signals and a negative divergence. There is primary support for the market at around Sensex 3275/ Nifty 1035, with strong secondary support available at 3225/1020.
Since the intermediate trend remains strong, we could expect the market to rebound from support. In the slightly longer timeframe of 4-6 weeks, we can still see upside targets of 3500/1150.
Rationale
The intermediate trend change was in mid-May and it could register higher peaks until mid-August. The chart patterns do suggest possible targets of 1150/3500. There is no apparent reason why those targets cannot be achieved.
At the same time, a key market driver
