Havoc if support breaks

The technical rebound of February 15 fizzed out in the next two weeks with the Sensex losing 1,469 points and the S&P CNX Nifty 419 points.

Now, strong support appears at 3650. Analysts do not expect this to break soon without a fight from the bulls. But if it does, expect a bloodbath, they say. Investors are turning cautious because the emerging markets as an asset class are beginning to appear expensive," K K Mittal, who manages about $32 million of domestic stocks at Escorts AMC in New Delhi, told Bloomberg.

With the Sensex highly oversold, support levels had to be in demand as we saw the index again sustained above the level of 12800.

The price points where the ongoing pullback could end are 13300 and 13500, around which the next leg of the downtrend should begin. The macro setup remains negative with the DM indicator in sell mode, RSI at a two-year low, a bearish runaway gap and moving averages crossover.

Keeping these triggers in mind one should trade cautiously on the long side. Even fresh short positions need not be initiated immediately as the markets could stay in a range for a few days before correcting again. Sharp downfalls are usually followed by sharp pullbacks.

Analysts at HDFC Securities continue with their negative bias as the short-term technical trend continues to remain downward.