5600: A CRUCIAL RESISTANCE

The week gone by turned out to be an extremely good one for the market as benchmark indices surged 4.4%, the highest percentage gain after the week ended 5th November 2010. Nifty closed in green on all the four trading sessions of the truncated trading week. On Friday however, the benchmark encountered a stiff resistance in the vicinity of important resistance levels, viz. 200 Day Exponential Moving Average and immediate previous top placed at 5601 and 5599 respectively, and slipped more than a percent from the top of the day to close at 5538, still gaining 235 points or 4.4% compared to previous week.



The level of 5600 carries a lot of importance. As shown in the weekly chart below, Nifty broke the bullish higher-top higher-bottom formation in place since March 2009 when the immediate previous bottom of 5937 was violated in November 2010. Since then a bearish lower-top lower-bottom formation has been in place. Currently immediate previous top is placed at 5599.25. Nifty has already made a higher bottom of 5232 as shown in the weekly chart and now if it crosses 5600 decisively, it would complete the higher-top higher-bottom formation. This will turn the medium term view bullish and one can expect a level of around 6000 in the subsequent weeks, where the trend line adjoining tops of November 2010 and January 2011 presents a resistance as shown in the weekly chart. On the downside, 38.2%, 50% and 61.8% retracement levels of the 5232-5608 up move, placed at 5464, 5420 and 5376 respectively, would be the support levels to watch out for. Traders are advised to wait for the decisive crossover of 5600 for taking fresh long positions.