36000-35000 a critical zone for October
Last week, the Sensex opened at 36942.71, moved to a high of 36945.50 and fell to a low of 35985.62 before it closed the week at 36227.14 and thereby registered a fall of 614 points on a week-to-week basis.
The earlier breakout points of 35993, 35877 and 35806 have halted the index’s fall. The low registered in the last 2 weeks are 35993 and 35985.
Lower range can act as support as the earlier phase of the rally towards 38989 had provided resistance when the index consolidated between 35993 and 35806.
The Sensex attempted to make a good opening in the last
6 trading days but failed to sustain at the higher range and showed an intra-day fall to create a bearish candle. Resistance will be at 36700-36950. Near-term reversal for a pullback may resume if a breakout and close above 36950 is witnessed with a bullish candle.
A breakdown for lower top and lower bottom will continue if the Sensex sustains below 35800.
Weekly resistance will be at 36386-36786-36950 and lower range for the week can be 35826-34866.
September 2018 has ended with a bearish candle and a lower high and lower low for an important swing top. If the support level of 35800 is held in October 2018, then an intra-day month rise towards the resistance of the monthly chart (i.e. 37049-38112-38990) will be tested.
A further breakout and close above 38990 is essential to save the Sensex from a deeper correction. The Monthly Reversal Value (MRV) is at 32973 and if the bearish candle continues in October 2018, then the MRV can be tested. The monthly breakout candle was July 2018 and its low was 35106. A cluster of support around 35800-35000 is visible, which could be tested if the weakness continues.
The July-September 2018 quarter is over and the Sensex has shown an inverted hammer, which suggests that an upside may be locked for the near-to-short-term putting pressure on support clusters. The low recorded in July-September 2018 quarter is 35106, which ensures that 35000 will remain critical for opening up a bear market. The bear market correction had a timeline of 9-12 months, 9-15 months and 18-38 months. The longest time-wise correction was from 1992 to 2003 and this situation may not happen again as a typical characteristic of such a phase is political instability.
If the Sensex continues to correct, it will break the 35000 level on a sharp and sustained basis and the correction could continue for the next 9-12 months or 9-15 months. The Sensex peaked in August 2018, which means the correction could get into May 2019. The year 2019 is the election year and historically, an election year tends to make major bottoms for the long-term. Corrections of such magnitude are from 25%, 38% and 55%, which can create significant damage and therefore, the Sensex will have to stand tall from the 36000-35000 zone and create a pillar for consolidation. Hence, October 2018 can be critical for the markets as September formed a bearish candle putting a question mark on the current rally.
BSE Mid-Cap Index Weekly chart:
The BSE Mid-Cap index could have a torrid time as a result of the bearish candle on the monthly chart with a lower top and breakdown of the previous bottom.
The breakdown is visible and October 2018 has a task in hand to save the market as the breakdown implication is towards 13632 from the current level of 14763.
As long as the index does not cross 17017, use the rise to the resistance of 15466-16313 to exit long during the week. A rise may create intra-day rallies, which may not sustain due to the bearish candle.
The BSE Mid-Cap index will have to turn the table upside down to restore faith in mid-caps, which means that a rise and close above 17017 is essential.
BSE Small-Cap Index Weekly chart:
A bearish candle was formed on the monthly chart and a Harami candle is needed for October 2018 to set things right. The first objective remains to exit long and sell till 17335 is not crossed.
Strategy for the week
The support zone of 36000-35000 will be under pressure and is critical for October 2018 and that will mark the difference between a deeper correction and bear market in the offing. Traders who are short for the near-term may have to revise their stop loss down to 37000. Traders may use the rise to the resistance of 36386 to exit long and sell with a stop loss of 37000 and expect 35800-35000 to be tested.