After a quick dash towards the 17,500 level in the Diwali week, markets this week retraced most of their gains owing to profit-booking.
In the Diwali week, the Sensex touched a high of 17,493, up over 4 per cent (683 points). On the other hand, the index touched a high of 17,457 this week and slipped 3 per cent (515 points) to 16,811. Barring Friday, the index ended in the red on the other three trading days (Monday was a holiday).
The index seems to have an intermediate top at 17,497. However, the medium-term trend will continue to remain positive as long as the index sustains above the 16,250-16,400 support zone. The longer-term support for the index is around 14,800.
Next week, the Sensex is likely to remain between 16,400 and 17,250. The index needs to sustain above 17,130 in order to challenge the recent high.
The NSE Nifty moved in a range of 214 points. From a high of 5,182, the index slipped to a low of 4,968, before settling with a loss of 2.82 per cent (145 points) at 4,997.
On the downside, the Nifty has considerable support around 4,890-4,915, while it is likely to face resistance around 5,080-5,130.
The index seems to have broken its rising trend-line support on Thursday. The index has also closed below its short-term moving average (20 days) for the last two trading days. The short-term moving average is currently at 5,038, while the medium term (50-days) average is at 4,837. The MACD and ADX have also generated a sell signal.
The combination of factors suggests that the index is now more or less headed towards its all-important support zone of 4,730-4,750.
The correction may last for at least another two weeks. It is likely to find strong support around these levels for the index in the recent past (June-August 2009) has made triple highs around these levels, which are now likely to act as supports.
