It was a surprising move for the index to break above the resistance line created since November 2011. The bid head and shoulder formation is still a possibility, albeit decreased in chances of being fulfilled.
We are 40 points away from breaking the previous high created on August 2011. The recent bullishness displayed last week seems to be legitimate. It was accompanied by considerable value turnover, and I could see no bearish/negative divergence created during the making of new highs. Although a very visible weakness was created last Friday’s trading and this could start a downward movement for next week.
I am all hopes that the downward movement for next week would just be a short break before the index continues its upward movement, hopefully making new highs.
Support is near 4410 – 4390 which are respectively the 10 day moving average(red line) and the resistance line from where the index broke above.
As long as the index is able to maintain its current value above the 10 day moving average, bullish sentiment may still be present in the market that could propel the index higher. Otherwise we go back to a higher possibility of the previously observed big head and shoulder formation.
For next week, if you are already making profits, I would suggest to sell a portion for the moment. If the index is unable to hold above 10 day moving average and starts to go to the area where the other moving averages are converging (4300-4250 area) I would suggest to sell all your positions as it would definitely be a sign that bullish sentiment has waned.
Also be on the lookout for a small head and shoulder formation. The current high may be the head and left shoulder at November 2011. It is possible that this may be a prelude to the bigger head and shoulder formation.
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