Archives : MARKET IN CLEAN - UP MODE - 10/12/2010.

MARKET IN CLEAN UP MODE - 10/12/2010.

GOOD CORPORATE GOVERNANCE TO BE REWARDED.

The market was in a clean-up mode last week, as it punished small and mid-cap stocks with even an iota of a doubt regarding corporate governance. This cleanup will be very positive for the long term health of the market. But the way the mid-cap and small-cap stocks collapsed, the investors and traders were left stranded as their portfolio got halved in no time. Not only was the magnitude of the fall scary, but the rate of the fall was scarier. Definitely the market will now award higher valuations to companies with good corporate governance. Any promoter – operator nexus to artificially rig the prices upward will not be tolerated by the market and will be punished severely.


 

   


MARKET IN CLEAN UP MODE - 10/12/2010.

GOOD CORPORATE GOVERNANCE TO BE REWARDED. 

The market was in a clean-up mode last week, as it punished small and mid-cap stocks with even an iota of a doubt regarding corporate governance. This cleanup will be very positive for the long term health of the market. But the way the mid-cap and small-cap stocks collapsed, the investors and traders were left stranded as their portfolio got halved in no time. Not only was the magnitude of the fall scary, but the rate of the fall was scarier. Definitely the market will now award higher valuations to companies with good corporate governance. Any promoter – operator nexus to artificially rig the prices upward will not be tolerated by the market and will be punished severely.

SUPPORT ZONE INTACT. 

Last week it was clearly mentioned that we are in a pull-back rally until Sensex 20285 and Nifty 6090 is crossed decisively. The market reacted from just below the above mentioned levels and the down trend resumed. The market fall was ferocious and finally it found support at the support zone between 19141-19075 for the Sensex and 5745-5726 for the Nifty. There was a confluence zone formed because of the overlapping of 61.8% retracement of the short term rise (Sensex 17819-21108 and Nifty 5348-6338) and 38.2% of the medium term rise (Sensex 15960-21108 and Nifty 4786-6338) along with the recent trendline support.

NIFTY RESISTANCE AT 5930-5940. 

After finding support the market bounced back and it is now correcting the immediate fall from Sensex 20217 to 19074 and Nifty 6069 to 5721. The 61.8% retracement of this immediate fall (Sensex 19780 and Nifty 5934) is overlapping with the 38.2% of the overall fall from Sensex 21108 and Nifty 6338 (Sensex 19777 and Nifty 5938). This is also aided by strong trendline resistance and hence the indices will find difficulty in crossing the resistance zone of Sensex 19768-19780 and Nifty 5932-5938.

TECHNICALLY SPEAKING. 

The Sensex opened the week at 20038, made a high of 20217, a low of 19074 and closed the week at 19508. The Sensex lost 458 points on a weekly basis. Similarly Nifty opened the week at 6033, made a high of 6069, a low of 5721 and closed the week at 5857. The Nifty too closed with a loss of 135 points on a weekly basis.

 

A big Black body candle was formed on the weekly charts for both Sensex and Nifty. The lower shadow is slightly longer which is due to the bounce seen from lower levels. On the daily charts on Friday, a big White body candle was formed due to the dead cat bounce but it failed to register a bullish reversal pattern. But both Sensex and Nifty took support at the trendline and managed to hold on to the 100dma levels. If one takes into account the Identical Three Black Crows formation which was completed two weeks back, then the downtrend will again resume once the dead cat bounce is over.

 

The market is well below the 20dma (Sensex – 19725 and Nifty – 5929) and 50dma (Sensex – 20121 and Nifty – 6052) and so the short term trend as well as the medium term trend continues to be down. At the same time both the indices are still above their 200dma (Sensex – 18363 and Nifty – 5512) and hence the long term trend still continues to remain positive.

 

Both the indices have recently formed a bottom at Sensex 18954 and Nifty 5690. This week the indices went lower (low for the week for Sensex was 19074 and Nifty 5721) but did not breach this recent bottom. Hence in the short term Sensex 18954 and Nifty 5690 assumes lot of significance. If the lows mentioned above are breached then Sensex and Nifty will form a lower top lower bottom formation after a long time and that would not be good news for the Bulls. The long term trend will remain intact as long as Sensex 17819 and Nifty 5348 remains intact.

 

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.

 

Currently both the indices have formed a lower top Sensex 20217 and Nifty 6069 and are now correcting its immediate fall i.e. from Sensex 20217-19074 and 6069-5721 and the correction levels for that are Sensex 19511-19646-19780 and Nifty 5854-5895-5934. If we take into account the entire fall from 21108 to 18954 and Nifty 6338 to 5690 then the correction levels for the Sensex will be 19777-20031-20285 and for the Nifty 5938-6014-6090. The 61.8% of the immediate fall is coinciding with the 38.2% of the overall fall i.e. Sensex 19777-19780 and Nifty 5934-5938 which will provide strong resistance on the upside. Only a close above the 61.8% retracement level (Sensex 20285 and Nifty 6090) will signal a resumption of the uptrend and a possible move towards the testing of previous high (Sensex 21108 and Nifty 6338). In case Sensex falls and closes below 18954 and Nifty below 5690, then the market will resume the correction of the rise of the Sensex from 15960 to 21108 and Nifty 4786 to 6338. The correction levels in that case are placed at 19141-18534-17927 for the Sensex and 5745-5562-5379 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.

 

MACD is in a Sell mode and in the negative territory. RSI too is in Sell mode along with ROC. Stochastic oscillator continues in its Sell mode. The Directional Indicators are in Sell mode as -DI continues to be above +DI and moving further away. The ADX has increased to 26 suggesting that the downtrend is now gaining strength. OBV and MFI continue to be in Sell mode.

 

The OI PCR is slightly lower at 1.10. Highest Open Interest build up is seen at 6000 Call and 5700 Put for the Dec series. Put writing at 5700 levels suggests strong support at that level and 6000 levels will provide strong resistance.

 

The Trendline Resistance for the Sensex falls at 19630-19767 and for the Nifty 5899-5932. The Trendline Support for the Sensex is at 18835 and for the Nifty 5670.

 

For the week ahead, Sensex will find Support at 19141-18823-18540 and will find Resistance at 19768-20080-20332.

 

For the week ahead, Nifty will find Support at 5737-5670-5567 and will find Resistance at 5937-6020-6091.

INDEX LEVELS: 

 S3S2S1CLOSER1R2R3
Nifty5567567057375857593760206091
Sensex18540188231914119508197682008020332

LAST WEEKS RECOMMENDATIONS:

All our recommendations achieved their target with ease. It was a jackpot week for our readers. The stars of the week were undoubtedly Allahabad Bank and LiC Hsg as both fell by more than 20%. 

STOCKReco. PriceTgtReachedLot SizeProfit
Sell LiC Hsg1035981828250Rs.51,750
Sell DLF3062822751000Rs.31,000
Sell Allahbd2432281921000Rs.51,000
Sell Escorts1881681521000Rs.36,000
Sell JsWSteel112410601031250Rs.23,250
    TotalRs.1,93,000

THIS WEEKS RECOMMENDATIONS: 

STOCKCMPSLTgt-1Tgt-2
Sell IndusInd260267249237
Sell JsW Steel104010621011982
Sell Crompton322326313303
Sell HDFC668676656642
Sell JainIrrig219225210201

WATCH OUT FOR:

IndusInd

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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