Archives : BLACK FRIDAY REVISITED - 26/11/2010.
BLACK FRIDAY REVISITED - 26/11/2010.
 

MARKETS HAD TO CORRECT.

 

Bears never had so much fun as they had in the last week. Week after week, new scams kept on surfacing and that has finally taken a toll on the market and finally the bulls had to give up. First it started with the CWG scam, then 2G Telecom scam, then financial crisis in Ireland, followed by political tension between North and South Korea and besides all the above the China factor kept on playing in the background. Finally when the corruption and bribery scam broke out, the market had to give in and it collapsed like a pack of cards. The worst hit being the real estate and banking stocks. The reasons are many but if one studies the technicals of the market, one thing was clear that the market was getting overbought in the higher time frame charts and had to correct. The market is breaking the support zones with ease and is now headed towards the critical long term support level of 200dma (Sensex – 18190 and Nifty – 5459).



BLACK FRIDAY REVISITED - 26/11/2010.
 

MARKETS HAD TO CORRECT.

 

Bears never had so much fun as they had in the last week. Week after week, new scams kept on surfacing and that has finally taken a toll on the market and finally the bulls had to give up. First it started with the CWG scam, then 2G Telecom scam, then financial crisis in Ireland, followed by political tension between North and South Korea and besides all the above the China factor kept on playing in the background. Finally when the corruption and bribery scam broke out, the market had to give in and it collapsed like a pack of cards. The worst hit being the real estate and banking stocks. The reasons are many but if one studies the technicals of the market, one thing was clear that the market was getting overbought in the higher time frame charts and had to correct. The market is breaking the support zones with ease and is now headed towards the critical long term support level of 200dma (Sensex – 18190 and Nifty – 5459).

 

IDENTICAL THREE BLACK CROWS.

 

A bearish reversal pattern called the Identical Three Black Crows has been formed on the weekly charts of both Sensex and Nifty. Identical Three Black Crows pattern formation occurs when there is no respite for buyers as they get chopped mercilessly. This pattern suggests that even though there is more to go on the downside, but not probably before showing some minor bounce back as many oscillators on the daily charts have entered oversold territory. Minor pullbacks will not reverse the downtrend but will provide an opportunity to exit long positions or to go short at higher levels.

TECHNICALLY SPEAKING. 

The Sensex opened the week at 19713, made a high of 19989, a low of 18954 and closed the week at 19136. The Sensex lost 449 points on a weekly basis. Similarly Nifty opened the week at 5920, made a high of 6020, a low of 5690 and closed the week at 5751. The Nifty too closed with a loss of 139 points on a weekly basis.

 

Both the indices have formed a big Black Body candle on the daily charts on Friday. On the weekly charts an Identical Three Black Crows formation has occurred which is a bearish formation formed over the last three weeks. This is a Bearish Trend Reversal Pattern and suggests that the trend has reversed from up to down.

In the current upmove an upward gap was left behind on the Sensex i.e. between 18845-18823 and now this gap is likely to act as a support. One can expect some support coming in at this level.

 

The market is already trading below the 20dma (Sensex – 20187 and Nifty – 6074) and 50dma (Sensex – 20171 and Nifty – 6068) and as a result both the short term trend and medium term trend are down. At the same time both the indices are still above their 200dma (Sensex – 18190 and Nifty – 5459) and hence the long term trend still continues to remain positive.

 

In the current upmove both the indices have formed higher bottoms at Sensex 19768 -17819 and Nifty 5937 – 5348. The short term trend has turned down as both the indices have closed below their recent 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.

 

The trendline joining the lows made in March 2009 to June 2010 was acting as a support until now, has been breached and will now act as a resistance. This trendline resistance falls at Sensex 19474 and Nifty 5846. There is a trendline support coming in at Sensex 18789-18447 and Nifty at 5650-5545.

 

Both Sensex and Nifty are undergoing a correction of the rise from Sensex 15960 to 21108 and Nifty 4786 to 6338. The correction levels for the Sensex are at 19141-18534-17927 and Nifty 5745-5562-5379. If slightly longer term view is considered, then the Sensex will undergo a correction of the rise from 13219 to 21108 and Nifty from 3918 to 6338. In that case the correction levels are 18094-17163-16233 for the Sensex and 5414-5120-4842 for the Nifty.

 

Both the indices have formed a Bearish Broadening Top formation and the target for that pattern falls at Sensex 18427 and Nifty 5512.

 

Short term oscillators are oversold while the majority of other oscillators continue to be in their Sell mode. The MACD and ROC continue in Sell mode besides being in negative zone. The RSI (38) continues to be in Sell mode. Stochastic oscillator (14) is in oversold zone and one can expect some short term bounce. The Directional Indicators are in Sell mode as -DI is well above +DI. The ADX has moved higher to 30 suggesting that the downtrend is gaining strength. MFI and OBV continue in Sell mode but MFI has just entered oversold zone.

 

The OI PCR is at 1.29. Highest Open Interest build up is seen at 6000 Call and 5600 Put for the Dec series which suggests a trading range between 6000 on the higher side and 5600 on the lower side.

 

For the week ahead, Sensex will find Support at 18845-18540-18237 and will find Resistance at 19474-19822-20105.

 

For the week ahead, Nifty will find Support at 5676-5567-5476 and will find Resistance at 5846-5937-6032.

  
    
INDEX LEVELS:
  
 S3S2S1CLOSER1R2R3
Nifty5476556756765751584659376032
Sensex18237185401884519136194741982220105
   
LAST WEEKS RECOMMENDATIONS: The markets tanked but our readers must have made tons of money as most of the stocks reached their lower targets. However the star performer for the week was LiC Hsg which went down by almost 29%. It was bonanza for all the readers.
 
STOCKReco. PriceTgtReachedLot SizeProfit
Sell BGR Engy718667525250Rs.48,250
Sell Aban772744660250Rs.28,000
Sell Siemens789753743500Rs.23,000
Sell LiCHsg12931243918250Rs.93,750
Sell HCLTech3773633711000Rs.6,000
    TotalRs.1,99,000
      
THIS WEEKS RECOMMENDATIONS:
  
STOCKCMPSLTgt-1Tgt-2
Sell SesaGoa299308284267
Sell BemL9901005968944
Sell HindZinc1100111710711040
Sell HindOilExp207214195181
Sell PatelEngg320329305287
  

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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