Archives : PULL-BACK IN AN INTERMEDIATE DOWNTREND - 21/05/2010

PULL-BACK IN AN INTERMEDIATE DOWN TREND – 21/05/2010.  

ROLLER COASTER RIDE.

The ‘May’ factor played itself out in full force as the market broke the 200dma and went much below it with increasing volatility. The market was on a roller coaster last week, amidst growing concerns over the health of the debt ridden Euro-zone nations. Adding to global concern was the overheating of the Chinese economy and poor economic and rising jobless claim data in the U.S. market. Our markets continue to move in direct correlation with the global markets as it went down in sympathy with the falling global markets. The market is now betting on a normal monsoon to stage a comeback. Even though the monsoon is expected to be normal, another bad monsoon could create problems for the agriculture sector and the overall GDP forecast.

SELL ON RISE.


PULL-BACK IN AN INTERMEDIATE DOWN TREND – 21/05/2010.  

ROLLER COASTER RIDE.

The ‘May’ factor played itself out in full force as the market broke the 200dma and went much below it with increasing volatility. The market was on a roller coaster last week, amidst growing concerns over the health of the debt ridden Euro-zone nations. Adding to global concern was the overheating of the Chinese economy and poor economic and rising jobless claim data in the U.S. market. Our markets continue to move in direct correlation with the global markets as it went down in sympathy with the falling global markets. The market is now betting on a normal monsoon to stage a comeback. Even though the monsoon is expected to be normal, another bad monsoon could create problems for the agriculture sector and the overall GDP forecast.

SELL ON RISE.

Our market has breached the 200dma and is now trading well below it and as a result the long term trend is in danger of turning down. The short and medium trends continue to remain down. Moving average analysis coupled with Trendline analysis suggest that the market is now a Sell on rise market. The pull-back witnessed from the lows of 4842 on Friday suggests a beginning of the correction of the current downtrend and not a reversal in the downtrend. The first test for the market will be at the 200dma (4993) followed by the strong resistances at 5115 (100dma) and 5208 (50dma). In the very short term, it will be a pull-back rally in an intermediate downtrend.

TECHNICALLY SPEAKING.

The Sensex opened the week at 16961, made a high of 17000, a low of 16187 and closed the week at 16445. The Sensex lost 549 points on a weekly basis. Similarly Nifty opened the week at 5093, made a high of 5105, a low of 4842 and closed the week at 4931. The Nifty too closed with the week with a loss of 162 points.

 

Both Sensex and Nifty have formed big body black candle on the weekly charts engulfing the previous weeks small white candle. On the daily charts on Friday, there is bullish hammer formation in the Nifty which is a bullish reversal pattern, whereas the Sensex has formed a white candle. One can assume that the immediate short term may take the market up, but the bearish weekly formation will assert itself going forward in the next week.

 

The Directional Indicators continue in their Sell mode as the –DI continues to be higher than the +DI. The ADX is increasing at 28 suggesting strengthening of the ongoing downtrend. Other oscillators like the ROC, MACD and RSI continue to be in Sell mode. Besides the Darryl Guppy Indicator suggests that the long term trend has turned down as the bunch of lower moving averages has gone below the cluster of higher moving averages. It is a reliable indicator and suggests reversal in the medium and long term trend. Stochastic oscillator is now oversold and suggests some sort of a pull-back. Surprisingly the OBV is not moving down in line with the prices suggesting that the market has moved lower on low delivery volumes, which offers some hope for the Bulls.

 

Last week we had mentioned that if the lows made by the Sensex (16684) and Nifty (4985) are breached, can one expect the market to continue with its downward correction and test the lower boundaries of the channel in which the market is moving. Trendline acting as the bottom of that channel falls at Sensex – 15992 and Nifty - 4820. Sensex and Nifty tested the lows of 16187 and 4842 before bouncing back on Friday. If the indices do not breach the above mentioned lows i.e. Sensex – 16187 and Nifty - 4842, then Sensex can pull back upto 16898-17117-17336 and Nifty 5055-5120-5186. But it will continue to remain a Sell on rise market.

 

Currently we are looking at the correction of Sensex rise from 13219 to 18047 and the correction levels will be 16203-15633-15063. Similarly one has to consider the Nifty rise from 3918 to 5399 and for that the correction levels will be 4833-4659-4484. Both Sensex and Nifty corrected upto the 38.2% correction level on Friday before bouncing back; Sensex bounced back from 16187 and Nifty from 4842.

 

Nifty OI PCR is at quite low at 0.92 suggesting that the Put writers have started losing confidence. The Open Interest buildup at the 4800 strike for June series has reduced which is a worrying sign for the bulls as the majority of buildup has now shifted to 4700 strike. 4500 strike Put is also adding open interest. Some Call writing is visible at the 5200 strike which will act as a resistance going forward.

 

For the week ahead, Sensex will find Support at 16261-15929-15651 and will find Resistance at 16684-16820-17028.

 

For the week ahead, Nifty will find Support at 4872-4820-4753 and will find Resistance at 4993-5051-5115.

 

INDEX LEVELS:

 S3S2S1CLOSER1R2R3
Nifty4753482048724931499350515115
Sensex15651159291626116445166841682017028

LAST WEEKS RECOMMENDATIONS:

It was a great week as all the stocks managed to hit their targets except Welspun Guj. The Star performers last week were Tata Steel and Sterlite Ind.

 

 

STOCKReco. PriceTgt ReachedLot SizeProfit
Sell SBI222421682141132Rs.10,956
Sell TataSteel547519487764Rs.45,840
Sell SterliteInd701658622438Rs.34,602
Sell Welspun2572502551600Rs.3,200
Sell BomDyeing5345185061150Rs.32,200
    TotalRs.1,26,798

THIS WEEKS RECOMMENDATIONS:

This week is expected to be very volatile and hence Pair Strategies are suggested.

 

 

PAIR NO.STOCKCMPSLTGT - 1TGT -2
1BuyPFC288284294302
SellTataPower1259128012301196
2BuyGail453447461469
SellBombayDyeing514523498483
3Buy Strides357344369381
SellPantaloon384394372361

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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