Archives : BACK TO THE TRADING RANGE - 27/08/2010
BACK TO THE TRADING RANGE - 27/08/2010.

Last week the bulls heaved a sigh of relief as the Nifty managed a close above 5500 on a weekly basis after a hiatus of more than 2 years. But as is the wont, the market once again started to trade in a small range i.e. after making a high the market moves lower and forms a lower boundary and starts trading between the higher and lower levels. This time after making a fresh high, the Nifty came down but the fall seems slightly more stronger than before and hence the dreaded question on every investor/ traders mind; whether the much awaited correction has started. It is interesting to note that correction has started as soon as FIIs started selling in our market. It just shows how dependent our market is on the FIIs for maintaining higher levels.

 

 

HAS THE CORRECTION STARTED?

   
BACK TO THE TRADING RANGE - 27/08/2010. 

Last week the bulls heaved a sigh of relief as the Nifty managed a close above 5500 on a weekly basis after a hiatus of more than 2 years. But as is the wont, the market once again started to trade in a small range i.e. after making a high the market moves lower and forms a lower boundary and starts trading between the higher and lower levels. This time after making a fresh high, the Nifty came down but the fall seems slightly more stronger than before and hence the dreaded question on every investor/ traders mind; whether the much awaited correction has started. It is interesting to note that correction has started as soon as FIIs started selling in our market. It just shows how dependent our market is on the FIIs for maintaining higher levels.

 

HAS THE CORRECTION STARTED?

The big question every one wants an answer to; is whether this is the start of a big correction or will it be a shallow one as before. Looking at the broader picture both the indices are moving in a Rising channel and is the case, the market returned after touching the supply trendline ( Sensex – 18478 and Nifty – 5549) making the top of the Rising channel and now is on a return journey towards the bottom of the Rising channel.

Secondly, the market has closed below the 20dma (Sensex – 18194 and Nifty – 5462) and as a result the short term trend has turned negative and now the attention has shifted to 50dma (Sensex – 17964 and Nifty – 5392). The intermediate trend will turn negative only if the indices manage a close below the 50dma.

One more way of interpreting is that the short term trendline has been breached but the higher bottom formation is still intact i.e. Sensex has higher bottom formation at 17838-17373 and Nifty higher bottom formation at 5349-5210. All this suggests that the market may be experiencing a minor correction as it has many times before and the chances are that this time too the correction is likely to bought into. The major uptrend will remain unaffected provided the higher bottom of Sensex – 17838 and Nifty – 5349 remains intact.

TECHNICALLY SPEAKING.

The Sensex opened the week at 18400, made a high of 18454,a low of 17944 and closed the week at 17998. The Sensex lost 403 points on a weekly basis. Similarly Nifty opened the week at 5531, made a high of 5549, a low of 5391 and closed the week at 5408. The Nifty too closed with the week with a loss of 122 points.

On the weekly charts both Sensex and Nifty have formed a Bearish Engulfing pattern as this weeks black body candle completely engulfs the previous weeks white body. This is a Bearish Reversal Pattern. On the daily charts on Friday, both Sensex and Nifty have formed a big black body candle.

Sensex has a strong support zone between 17914 – 17838 and Nifty between 5372-5349. If the fall continues then both Sensex and Nifty are likely to run into their support zones and may take some support over there. Hence strong support will be seen in the Sensex zone between 17914-17838 and Nifty zone of 5372-5349.

 

Since last October, the market is moving in a rising channel and the channel top has provided strong resistance to the market and that supply trendline top falls at Sensex 18478 and Nifty 5549. Both the indices managed to touch the supply line and returned from there. For the market to continue with its current upmove, it is necessary that the market cross and close above trendline top consistently.

 

 

The above pattern formation is keeping in mind slightly longer time duration in mind. But if we consider short dynamic pattern formation then we have a Broadening Top formation for both Sensex and Nifty. Both the indices have managed to touch the upper trendline of the Broadening formation and are now returning back to the bottom of the Broadening formation and those levels are 17793 and 5335 for the Sensex and Nifty respectively. According to this formation, the above mentioned levels may provide for short term support for both Sensex and Nifty. If the above mentioned levels are breached, then the Broadening Top will act as a Bearish Reversal pattern and the trend will be reversed from up to down.

In the current upmove both the indices have registered higher bottom formation. Sensex has formed higher bottoms at 17838-17373 and Nifty has formed higher bottoms at 5349-5210. The short term trend will be in danger only if both the indices close below their first higher bottoms i.e. Sensex – 17838 and Nifty – 5349. In such a case a short term down trend will be triggered and the market will then head towards next major higher bottom which is at Sensex 17373 and Nifty 5210. Short term trend will remain intact as long as the Sensex stays above 17838 and Nifty remains above 5349. One need not worry about the medium term as long as the level of 17373 for the Sensex and 5210 for the Nifty remains intact.

 

On the moving averages front, both the indices have closed below their 20dma (Sensex – 18194 and Nifty – 5462) and hence the very short term trend has turned negative. Now the focus has shifted on the 50dma. The intermediate trend will be reversed from up to down, if the 50dma is breached. 50dma for the Sensex is at 17964 and Nifty 5392.

 

Oscillators are more or less in Sell mode. MACD has just given a Sell signal and so has the ROC. The RSI has dipped to 45 and has also signaled a Sell. The Direction Indicators have also given a Sell signal as the –DI has crossed over the +DI from below. The MFI too has given a Sell signal and is now at 37. Stochastic oscillator has also given a Sell signal as % K is below % D, but the Fast Stochastic % K is oversold at 13. The OBV still continues in its buy mode as it has not yet given a Sell signal.

If we were to contend that this may turn out to be a short term correction then we will have to consider the Retracement of the current rise from 15960 to 18475 for the Sensex and 4786 to 5549 for the Nifty. The Retracement levels for the Sensex will be 17514-17218-16921 and for the Nifty, the levels will be 5258-5168-5077.

The O.I.PCR is quite high at 1.64. Call writing continues at the strike of 5600, which will act as a resistance going forward. Put writing is slowly shifting from the strike of 5400 to 5200. In case of breach of 5400, one can expect 5200 to provide strong support for the Nifty.

Sensex has strong Trendline Support at 17793. The Trendline Resistance for the Sensex is at 18478 which is also the Rising Channel top.

Nifty has strong Trendline Support at 5335. The Trendline Resistance for the Nifty is at 5549 which is also the Rising Channel top.

 

For the week ahead, Sensex will find Support at 17838-17679-17493 and will find Resistance at 18167-18315-18475.

For the week ahead, Nifty will find Support at 5372-5298-5242 and will find Resistance at 5453-5492-5549.

 

INDEX LEVELS:

 S3S2S1CLOSER1R2R3
Nifty5242529853725408545354925549
Sensex17493176791783817998181671831518475

LAST WEEKS RECOMMENDATIONS:

Except for DLF all stocks reached their targets and reached higher levels. The star performers for the week were Jindal Drill which went up by a staggering 30% and BPCL which was up by almost 14% in a week.

STOCKReco. PriceTgtReachedLot SizeProfit
Buy DLF3333433371000Rs.4,000
Buy BPCL698729802500Rs.52,000
Buy JindDrill514551669500Rs.77,500
Buy LMW215322742280100Rs.12,700
Buy MRF77338174830050Rs.28,350
    TotalRs.1,74,550

THIS WEEKS RECOMMENDATIONS:

STOCKCMPSLTgt-1Tgt-2
Buy ONGC1318130613371357
Buy Escorts196192203211
Buy VenusRem305296317330
Buy Cummins729718747765
Buy AssamCo21.4020.4023.3525.70

WATCH OUT FOR:

ONGC

Escorts

   
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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