Another week ended with a decline as it seems the market has finally topped out. This week was the third consecutive red week after four green ones, with the Sensex index ending Friday’s session with a weekly cut of 0.59%.
Now the question is - is it the time to go long or still short positions have a higher chance of making money?
Image Description: Daily chart of Sensex (spot)
Image Source: Investing.com
Firstly, the trend is still negative, without a doubt. In the previous analysis of Sensex, I had shown a falling trendline resistance that was keeping the index from rising, and this same reason applies as of the last closing. The market isn’t finding the strength to rise above this trendline and as long as this does not happen, bears might keep enjoying their profits.
Another concrete level to watch out for is the resistance of 66,050. This is now the nearest up fractal and can be a good trend-reversal level once the index crosses this mark.
So, there are two levels that should be kept in mind before trying to initiate long positions - the falling trendline breakout, at approx. INR 65,800 or the up fractal breakout, at INR 66,050.
On the short side, despite the trend still being negative, it would not be bad for traders to book some profits and aggressively trail their stop loss levels. This might sound contradictory, however, the index has given 3 red weeks in a row which has happened for the first time after March 2023. This was the exact time when the market bottomed out and rallied like crazy.
I am not saying that the final correction is over, however, 3 consecutive losing weeks definitely make the index a bit oversold and on account of mean reversion, some bounce could come this week. 65,200 - 64,950 seems to be a good level to book profits on short positions. However, a fresh wave of selling can start below the lower end of the support.
Note: Tuesday is a holiday, therefore traders should manage their positions accordingly. Also, India’s CPI data is set to be released on 14 August 2023 which can instill volatility in the market.
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