Technicals chart further falls ahead

4 Mar, 2008, 0133 hrs IST, TNN

MUMBAI: Rarely, in the past five years of bull run, have investors watched technical charts so closely as much as in recent times to determine the market direction. With most fundamental triggers proving to be ineffective in the past couple of months, several investors, including some mutual fund houses, are watching trends on the charts in their attempts to outperform their respective benchmark indices.

“The ‘buy-and-hold’ strategy does not work in such market conditions. It is all about entering at low levels and exit at higher levels, until the market finds its bottom,” said Almondz Global Securities’ technical analyst and derivatives strategist Gurudatta Dhanokar.

If existing indicators on charts are anything to go by, the odds of the market falling further are higher than finding a bottom or a reversal. Analysts said roughly 20 shares on the 50-share Nifty are trading below their long-term moving averages and another 20 are on the verge of falling below this critical indicator. “It will disastrous for bulls, if these stocks sustain below their long-term moving averages,” Mr Dhanokar said.

Usually, when a stock or index falls below the 100-or 200-DMA (day moving average), the outlook is considered negative. Moving averages, a widely used technical indicators worldwide, are generally used to predict the levels of a possible support or resistance for a stock.

Analysts said the Nifty faces strong resistance at its 200-DMA of 5,052. On Monday, the index, tracing the weak trend in global markets, closed 5% lower at 4953. In additional to technical weakness, the hike in short-term gains tax in the Budget also weighed on investor sentiment.

“The Nifty is trading very close to a crucial support level. Nifty’s low in January (4,899.30) will be crucial for the market,” said brokerage Asit C Mehta’s technical analyst Suresh Kumar Iyer. According to Mr Dhanokar, the Nifty has critical support at 4,780 and resistance at 5,050-5,150-level.