Archives : MARKETS TUMBLE DUE TO FED RATE HIKE - 19/02/2010.

MARKETS TUMBLE DUE TO FED RATE HIKE - 19/02/2010.

SURPRISE RATE HIKE BY THE FED.   

BIG WEEK AHEAD.

  

EXPECT THE UNEXPECTED, ITS PRANAB TIME ONCE AGAIN. 

TECHNICALLY SPEAKING. 

INDEX LEVELS.

LAST WEEK’S RECOMMENDATIONS.

THIS WEEKS RECOMMENDATIONS.

 

 

MARKETS TUMBLE DUE TO FED RATE HIKE - 19/02/2010.

SURPRISE RATE HIKE BY THE FED. 

In an unexpected move the Fed increased the Discount rate by 25 bps to 0.75%, which took the global markets by surprise. As a result, the Asian markets traded weak and that rubbed off on our market as well. The move by the Fed was taken harshly by the interest rate sensitive and metal stocks as they tumbled sharply. This move is seen as a first step towards partial withdrawal of their stimulus package.  The job for our FM to withdraw certain part of the stimulus measures becomes easier. Also the IIP data suggests that the India Inc is on a strong growth path. On the flip side, withdrawal of any part of stimulus package need to be taken positively from a slightly longer term point of view as that indicates that the economy is moving in the right direction.

 

BIG WEEK AHEAD.

 

The week gone by was a very volatile one to say the least and the coming week is expected to provide more of it as it will be a very news heavy week. Three important events are lined up in the next week, starting with the Rail Budget, followed by Feb Series Expiry on Thursday and finally the most awaited financial event of the year the Union Budget. All eyes will be on Mr Pranab Mukherjee to see what route he takes for the Indian economy, whether growth still takes precedence over inflation or the FM chooses to tame the inflation first. For the Rail budget, usual suspects like Texmaco, Titagargh Wagon, Kalindee Rail, Stone India, BEML, Siemens, etc will be in focus. As far as the Union Budget is concerned, Defence stocks are likely to be in focus as there is a talk of increasing the Defence Budget by 15-20 %, so keep a watch on stocks like BEL, Bhel, Nelco and Astramicro.

 

 

EXPECT THE UNEXPECTED, ITS PRANAB TIME ONCE AGAIN. 

Looking at the technicals, clearly suggest that there is a negative bias in the very short term and a crossover of the critical levels seem difficult. On the higher side Nifty is facing resistance around 4950 and on the lower side at around 4700. A strong move will be seen once any one of the above levels gets breached, though the path of least resistance happens to be downward. Still one can hope for the FM to shock the market by doing the unexpected. Last time he had everything going for him and he delivered a budget which can be dubbed as almost a non event. This time the FM is faced with the dilemma of withdrawing a part of stimulus package and put the divestments of the PSUs on the fast track. Besides this, he needs to take a strong stance on the subsidy issue and rein in the fiscal deficit. Let us see what he does, or he possibly continues to do what he did last time, remain silent. The stage is now set for the Union Budget.

 

 

TECHNICALLY SPEAKING. 

The Sensex opened the week at 16186, made a high of 16480, a low of 16011 and closed the week at 16191. The Sensex closed the week with a small gain of 39 points. Similarly Nifty opened the week at 4827, made a high of 4929, a low of 4783 and closed the week at 4844. The Nifty too closed with the week with a minor gain of 18 points.

 

Both the indices managed to register a neutral formation on the weekly charts. Sensex formed a Doji whereas the Nifty formed a cross between a spinning top and a star but with a long upper shadow and a small lower shadow. Both are neutral formations and will await the formation of the next weeks candle for further clarity of the direction of the market.

 

Last week we said that both the indices were in a pull-back mode because of the bullish harami pattern formed a week before and the indices exactly tested the first retracement level Sensex 16468 and Nifty 4918, before pulling down again. Over all the pull-back levels for the Sensex are 16468-16721-16973 and for the Nifty, the pull-back levels are placed at 4918-4993-5067.

 

Both the indices had taken support at just above the 200dma before bouncing back. Currently the 200dma for the Sensex is at 15801 and for the Nifty, it is at 4713. Sensex rebounded after taking support at 15651 and the Nifty from 4675. Hence the Sensex will find immediate support at 15801 and Nifty at 4713.

 

Both Sensex and Nifty were held by the Trendline joining the higher bottoms of Sensex 13219-15330 and Nifty 3918-4538. This Trendline got breached and as a result we are correcting the rise of Sensex from 13219-17790 on an immediate basis, and the correction levels are 16044-15505-14965. The Nifty is correcting the rise from 3918-5310 and the correction levels are 4778-4614-4450. If we consider entire rise from Sensex 7697-17790 and Nifty 2252-5310, then the correction levels are Sensex 13935-12743-11553 and those for the Nifty 4142-3781-3420.

 

Both Sensex and Nifty had given a Bearish Rising wedge breakout and the targets for the Sensex are 15714-15373 and Nifty 4684-4587. The first target has already been achieved. Both Sensex and Nifty have formed a Bearish Flag pattern and the targets for that pattern are Sensex – 14822 and Nifty – 4425 which is almost coinciding with the 61.8% retracement of the current rise.

 

Interestingly the lower target for the Bearish wedge (Sensex – 15373 and Nifty – 4587) almost coincide with the higher bottom (Sensex – 15330 and Nifty – 4538), besides the 50% retracement of the immediate rise (Sensex – 15505 and Nifty – 4614) and the current bottom (Sensex – 15651 and Nifty – 4675). There seems to be a confluence of supports between Sensex 15651-15330 and Nifty 4675-4538 and hence one can expect strong support coming in at those levels in case of further downfall below the 200dma.

 

Nifty OI PCR is at a low of 0.97, which is now entering an oversold territory and indicative of the bearish mood of the market. Call writing is seen at 4900, which supposedly should act as a resistance going forward. Put writers have started losing confidence which can be seen as the open interest at strikes 4800 and 4700 have come down.

 

For the week ahead, Sensex will find Support at 15982-15651-15330 and will find Resistance at 16480-16635-16868.

 

For the week ahead, Nifty will find Support at 4766-4675-4538 and will find Resistance at 4929-4996-5067.

INDEX LEVELS: 

 S3S2S1CLOSER1R2R3
Nifty4538467547664844492949965067
Sensex15330156511598216191164801663516868

LAST WEEK’S RECOMMENDATIONS:

Despite such a volatile week all our targets were achieved with ease and the stars were Bhushan Steel and Kalindee Rail as can be seen from the table below.  

STOCKReco. PriceTgt ReachedLot SizeProfit
Buy AuroPh934952954700Rs.14,000
Buy Mphasis728742753800Rs.20,000
Buy Bhushan159216601675500Rs.41,500
Buy Maruti135613851390200Rs.6,800
Buy Kalindee2062162261000Rs.20,000
    TotalRs.1,02,300

THIS WEEKS RECOMMENDATIONS: 

This week being the Budget week, lot of volatility can be expected and as a result we suggest hedging your trades. One can adopt Pair Strategy approach for this week. 

PAIR NO.STOCKCMPSLTGT - 1TGT -2
1BuyEducomp708691728757
SellTata Power1240125512131182
2BuyBEL2053203020952140
SellHDiL302308290280
3Buy Glaxo1651162216841705
SellPunjLloyd173178166159

WATCH OUT FOR:

 
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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