Weekly analysis : CLASSIC BEAR TRAP - 08/12/2017.

CLASSIC BEAR TRAP - 08/12/2017.

 

NOT YET OUT OF THE WOODS.

 

The market movement over the past week was very volatile to say the least, but not decisive. As a matter of fact there are more questions regarding the direction of further price movement than before. Just when Nifty broke the decisive Support zone of 10120-10094 and closed below it, it seemed clear that the market had made up its mind to test the lower levels. But that was not to be, as the market suddenly took a U-turn and reversed all the losses of past four days in just two days by making two big White body Marubuzo. It was a Classic Bear Trap as the Bears had to run for cover as a combination of short covering aided with fresh buying took the market higher. But we are not yet out of the woods as we still require a closing above Nifty – 10316.

 


CLASSIC BEAR TRAP - 08/12/2017.

 

NOT YET OUT OF THE WOODS.

 

The market movement over the past week was very volatile to say the least, but not decisive. As a matter of fact there are more questions regarding the direction of further price movement than before. Just when Nifty broke the decisive Support zone of 10120-10094 and closed below it, it seemed clear that the market had made up its mind to test the lower levels. But that was not to be, as the market suddenly took a U-turn and reversed all the losses of past four days in just two days by making two big White body Marubuzo. It was a Classic Bear Trap as the Bears had to run for cover as a combination of short covering aided with fresh buying took the market higher. But we are not yet out of the woods as we still require a closing above Nifty – 10316.

 

TECHNICALLY SPEAKING.

 

Sensex opened the week at 32968, made a high of 33285, low of 32565 and closed the week at 33250. Thus it closed the week with a gain of 418 points. At the same time the Nifty opened the week at 10175, made a high of 10270, low of 10033 and closed the week at 10265. Thus the Nifty closed the week with a gain of 144 points.

 

On the daily charts, both the indices have formed big Opening White Body Marubuzo on both Thursday and Friday which is signalling for a reversal. On the weekly charts both the indices have formed a white body with a longer shadow which indicates fresh buying at lower levels. But combined with previous week’s candle, the formation resembles a Bullish Harami. This requires confirmation in the form of a white body candle in the next week. Thus daily as well as weekly charts suggest a bullish bias in the near term.

 

This week gave a classic example of a Bear trap. Both the indices closed below their respective Support zone of Sensex 32804-32670 and Nifty 10120-10094 and it was almost certain that the market would slide down, but that was not to be as the Bulls took the reins in both their hands and the market experienced a V-shape recovery. The recovery was so sharp that the damage of past five days was recovered in just two days. It was a classic Bear Trap on display.

 

A lower bottom has been formed in this week and in the short term timeframe the market has registered a lower top lower bottom formation. Hence despite the sharp recovery, we are not yet out of the woods as we require the indices to close above the critical Trend Reversal level of Sensex 33369 and Nifty 10316. On the higher side, Nifty has a strong Resistance in the form of a Bearish Gap between 10332-10345. A close above these levels will indicate that the market is now ready to test the previous highs.

 

 

 

A break below the previous weeks low i.e. Sensex 32565 and Nifty 10033 will indicate that the indices will go lower to test the key level i.e. the long term higher bottom of Sensex 31128 and Nifty 9685. A break of this support will interrupt the weekly higher top higher bottom formation sequence for the indices for the first time since December 2016. As a result, we will be looking at the Correction of the entire rally which started from Sensex 25717 and 7896 for the Nifty.

 

This week, both the indices breached the short term average of 20dma (Sensex - 33212 and Nifty - 10246) as well as the medium term average of 50dma (Sensex – 32850 and Nifty – 10206), but the market saw a sharp recovery on Thursday and Friday and as a result both the indices managed to close above them. Both the indices still remain well above the long term average of 200dma (Sensex – 31303 and Nifty – 9713).  Thus the trend in short term as well as medium term timeframe has recovered and is Upward, whereas the trend in the long term timeframe still continues to remain Bullish.

 

On the weekly formation, both the indices had completed a Cup and Handle formation and the targets are Sensex 34677-37554 and Nifty 10536-11413. If one considers the Cup and Handle formation of 7 years from 2007 to 2014, the target for that pattern falls at Sensex 34715 and Nifty 10462. The Golden Ratio target of the current pattern weekly pattern of 2 years is at Sensex 34677 and Nifty 10536. Thus in the medium term one can expect a test of the above targets i.e. Sensex 34677-34715 and Nifty 10462-10536.

 

MACD as well as Price ROC continue in Sell mode. RSI (52) suggests bullish momentum. Stochastic Oscillator %K (33) has signalled a fresh Buy. ADX is now at 21, which suggests that the trend is being developed. Directional Indicators are still in Sell mode. MFI (42) suggests Negative Money Flow. OBV is still in Buy mode making higher top higher bottom formation. Thus Oscillators are suggesting a mixed bias for this week.

 

Options data for December series indicate highest Call Open Interest is at the strike of 10500 whereas the highest Put build-up has further increased and continues at the strike of 10000. Thus Options data suggests a trading range with resistance at 10500 & support at 10000.

 

INDEX LEVELS:

 

 

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

9988

10088

10178

10265

10383

10490

10589

Sensex

32209

32565

32889

33250

33623

33963

34291

 

THIS WEEKS RECOMMENDATIONS:

 

STOCK

CMP

SL

Tgt-1

Tgt-2

Buy PEL

2879

2826

2960

3044

Buy Pidilite

890

873

915

943

Buy PC Jewellers

416

407

430

445

Buy M&MFin

452

442

467

483

Buy V-Guard

237

232

245

254


WATCH OUT FOR:

 

M&MFin

 

 

 

 

 

 

Disclaimer : The recommendations made herein do not constitute an offer to sell or a solicitation to buy any of the securities mentioned. No representations can be made that the recommendations contained herein will be profitable or that they will not result in losses. Readers using the information contained herein are solely responsible for their actions. Information is obtained from sources deemed to be reliable but is not guaranteed as to accuracy and completeness.

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