Archives : BEARISH ENGULFING - 12/11/2010

BEARISH ENGULFING - 12/11/2010.

POST DEEPAWALI SHAKEUP. 

While many may still be enjoying their Deepawali holidays, the market is no mood to rest as it went down dramatically in the last two days of the week. The market was in a good steady rise in the Deepawali week where it almost tested all time highs but eventually could not cross that level and once again started to correct. Short term correction has been signaled as the market has closed below the 20dma and also formed a Bearish Engulfing Reversal pattern on the weekly charts.

 

This time the reasons for correcting were both global and local. On the global scene, China led the fall amidst rising expectations that the Chinese government might tighten credit and raise interest rates in order to slowdown the economic growth after inflation reached a 2 year high.

 

Besides this, in the G-20 summit, the advanced and developing nations struggled to resolve a US - China currency dispute which now threatens to escalate in a global trade war and might even send the global economy back into recession.

 

On the local front, poor IIP figures helped the bears further as the market went into a sell-off mode. The IIP data for Sept came in at 4.4% v/s 8.8% a year ago. The IIP figure almost came in at half primarily led by poor performance of Capital goods. Capital goods fell by 4.2% v/s a growth of 7.9% a year ago. All these factors combined to bring down the market.

  

BEARISH ENGULFING - 12/11/2010.

POST DEEPAWALI SHAKEUP. 

While many may still be enjoying their Deepawali holidays, the market is no mood to rest as it went down dramatically in the last two days of the week. The market was in a good steady rise in the Deepawali week where it almost tested all time highs but eventually could not cross that level and once again started to correct. Short term correction has been signaled as the market has closed below the 20dma and also formed a Bearish Engulfing Reversal pattern on the weekly charts.

 

This time the reasons for correcting were both global and local. On the global scene, China led the fall amidst rising expectations that the Chinese government might tighten credit and raise interest rates in order to slowdown the economic growth after inflation reached a 2 year high.

 

Besides this, in the G-20 summit, the advanced and developing nations struggled to resolve a US - China currency dispute which now threatens to escalate in a global trade war and might even send the global economy back into recession.

 

On the local front, poor IIP figures helped the bears further as the market went into a sell-off mode. The IIP data for Sept came in at 4.4% v/s 8.8% a year ago. The IIP figure almost came in at half primarily led by poor performance of Capital goods. Capital goods fell by 4.2% v/s a growth of 7.9% a year ago. All these factors combined to bring down the market.

TECHNICALLY SPEAKING.

The Sensex opened the week at 21041, made a high of 21075, a low of 20108 and closed the week at 20156. The Sensex lost a whopping 848 points on a weekly basis. Similarly Nifty opened the week at 6335, made a high of 6335, a low of 6056 and closed the week at 6071. The Nifty too closed with a heavy loss of 241 points on a weekly basis. It was the highest weekly loss for both the indices since May.

 

Both the indices have formed a big black body candle on the daily charts on Friday, thereby breaching the support of 20dma and closing well below it. On the weekly front, both Sensex and Nifty have formed a Bearish Engulfing Reversal pattern. The big black candle formed this week completely engulfs the previous weeks white body. This pattern suggests a short term reversal in the trend but the more concerning fact is that this bearish reversal pattern has occurred when the indices are near their all time highs.

Once again the market has closed below the 20dma (Sensex – 20371 and Nifty – 6128) and as a result the short term trend has turned down. At the same time both the indices are still above their 50dma (Sensex – 20033 and Nifty – 6024) and 200dma (Sensex – 18028 and Nifty – 5409) and hence the medium and long term trend still continue to remain positive. Since both the indices have breached the 20dma, it is likely that the indices may test the 50dma in the immediate future, which will determine the medium term trend according to the moving average analysis.

 

In the current upmove both the indices have rebounded from Sensex 19768 and Nifty 5937 and in the process have registered higher bottoms. Sensex has formed higher bottoms at 19768-17819 and Nifty has formed higher bottoms at 5937-5348. The short term uptrend will be in danger only if both the indices close below their higher bottoms i.e. Sensex – 19768 and Nifty – 5937. The long term trend will remain intact as long as Sensex 17819 and Nifty 5348 remains intact.

 

Both Sensex and Nifty are likely to test the support at 50dma (Sensex – 20033 and Nifty - 6024). In case the above support is breached, the correction is likely to continue and we will see a correction of the rise i.e. from Sensex 17819 to 21108 and Nifty 5348 to 6338. In that case, the correction levels for the Sensex are at 19852-19463-19075 and Nifty 5960-5843-5726.

 

In the correction, market is likely to take support at the 38.2% retracement level i.e. at Sensex 19852 and Nifty 5960, which is very near to the previous higher bottom at Sensex 19768 and Nifty 5937. Expect strong support to emerge between 19870-19768 for the Sensex and between 5960-5937 for the Nifty.

 

Majority of the oscillators have turned negative. MACD and RSI have given a Sell signal today. ROC though in positive territory is moving lower. Stochastic oscillator has again given a Sell signal as %K has cut the %D line from above. ADX has moved lower at 25 and the Directional Indicators have given a Sell signal as +DI has cut –DI from above. MFI and OBV too have signaled a Sell.

 

The OI PCR is quite low at 1.02, which is suggesting that the Bears are having an upper hand in the market. Highest Open Interest is seen at 6300 Call and 6000 Put suggesting a short term trading range between 6300 on the higher side and 6000 on the lower side. Very high Put writing was seen at the 6200 strike on Friday. In the immediate future, Nifty 6200 will be difficult to surpass.

 

Sensex has Trendline Support at 19869 – 19225.

 

Nifty has Trendline Support at 5970 - 5774.

 

For the week ahead, Sensex will find Support at 19870-19716-19463 and will find Resistance at 20452-20706-20961.

 

For the week ahead, Nifty will find Support at 5985-5901-5843 and will find Resistance at 6151-6222-6303.

INDEX LEVELS: 

 S3S2S1CLOSER1R2R3
Nifty5843590159856071615162226303
Sensex19463197161987020156204522070620961

LAST WEEKS RECOMMENDATIONS: 

STOCKReco. PriceTgtReachedLot SizeProfit
Buy BajajAuto151015751630125Rs.15,000
Buy Colgate8809251004250Rs.31,000
Buy ICICI116312071279250Rs.29,000
Buy Havells414427423500Rs.4,500
Buy J&K Bnk910931930300Rs.6,000
    TotalRs.85,500

THIS WEEKS RECOMMENDATIONS: 

STOCKCMPSLTgt-1Tgt-2
Sell AlstomProj731740715697
Sell JainIrrig214217208201
Sell Bhel2389240723652339
Sell Infosys2997301029682937
Sell HindZinc1237125212181194

WATCH OUT FOR:

 

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