Archives : RISING OIL PRICES, A CAUSE OF CONCERN - 04/03/2011.

RISING OIL PRICES; A CAUSE OF CONCERN – 04/03/2011.

PEOPLE’S REVOLUTION SPREADING TO OTHER ARABIAN COUNTRIES.

The big event i.e. Union Budget is now out of the way and it was not very damaging as the market had expected. The market heaved a sigh of relief and started to rally. The rally was more due to short covering than fresh buying. The Budget has been done and digested by the market and now it is looking for the usual suspects like Crude Oil prices and international cues for market direction. The revolution in Libya is now spreading to neighbouring countries like Bahrain and Saudi Arabia. As a result the crude oil prices have jumped to over $106. This is bad news for emerging economies like ours. As a result the market is failing to cross higher resistance levels.

NOT SO “NEGATIVE” BUDGET.

Considering the uncertainty as regards political equation at the centre in the face of new scams emerging, rising crude oil prices (now in triple digits), political uncertainty and people’s revolution in Egypt and Libya which is now spreading to Bahrain and Saudi Arabia, coupled with huge FII outflows; it was certainly not the easiest of times to present the Union Budget. In such challenging times, the expectations were at rock bottom levels. The budget presented, was not very negative and hence not that harmful from the market’s point of view. It was a sort of non-event considering that once again the FM missed out on reforms and disinvestment front.

 


RISING OIL PRICES; A CAUSE OF CONCERN – 04/03/2011.

PEOPLE’S REVOLUTION SPREADING TO OTHER ARABIAN COUNTRIES.

The big event i.e. Union Budget is now out of the way and it was not very damaging as the market had expected. The market heaved a sigh of relief and started to rally. The rally was more due to short covering than fresh buying. The Budget has been done and digested by the market and now it is looking for the usual suspects like Crude Oil prices and international cues for market direction. The revolution in Libya is now spreading to neighbouring countries like Bahrain and Saudi Arabia. As a result the crude oil prices have jumped to over $106. This is bad news for emerging economies like ours. As a result the market is failing to cross higher resistance levels.

NOT SO “NEGATIVE” BUDGET. 

Considering the uncertainty as regards political equation at the centre in the face of new scams emerging, rising crude oil prices (now in triple digits), political uncertainty and people’s revolution in Egypt and Libya which is now spreading to Bahrain and Saudi Arabia, coupled with huge FII outflows; it was certainly not the easiest of times to present the Union Budget. In such challenging times, the expectations were at rock bottom levels. The budget presented, was not very negative and hence not that harmful from the market’s point of view. It was a sort of non-event considering that once again the FM missed out on reforms and disinvestment front.

 

FM WALKS THE FINE LINE BETWEEN INFLATION AND GROWTH.

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The positive aspect is FM has targeted to bring down the fiscal deficit to 4.6%, which is much lower than what the market had expected. This should be achievable if subsidy burden is reduced and fuel prices are increased. FM has managed to cover the concerns regarding inflation and targeted to bring it down over the next year but without compromising on growth. In short he has tried to maintain a balance between controlling inflation and balancing growth, besides trying to reduce the fiscal deficit.  Besides that it was a sort of opportunity which the FM could have grabbed with both hands and come out with a path-breaking reform oriented budget, but that was not to be. With the big event out of the way, the market now will once again look to its own internals and global market for further directional cues.

 

 

TECHNICALLY SPEAKING.

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The Sensex opened the week at 17811, made a high of 18736, a low of 17718 and closed the week at 18486. The Sensex gained 786 points on a weekly basis. Similarly Nifty opened the week at 5330, made a high of 5608, a low of 5308 and closed the week at 5538. The Nifty too closed with a gain of 235 points on a weekly basis.

 

Both the indices have formed Meeting Lines bearish reversal pattern on the daily charts. Thursday formed a white body candle, while Friday opened with a big gap up and closed lower to form a black body candle. The closing for both the days is same and hence we have a Meeting Lines formation. On the weekly charts we have a big white body candle which is acting as a confirmation of Stick Sandwich formation formed last week. Hence on one hand there is a bearish reversal pattern formed on the daily charts, and a bullish reversal pattern on the weekly charts. In such a case the stronger of the two i.e. the pattern of the higher time frame will exert itself over the pattern formed in a lower time frame. Hence one can expect some volatility before the longer term pattern exerts itself over the smaller timeframe pattern.

 

Moving Average Analysis suggests long and medium term trend continue to be down while the short term trend has turned up. Market is trading below the 200dma (Sensex – 18835 and Nifty – 5653) and 50dma (Sensex – 18863 and Nifty – 5651) which means that the long term and medium term trend is down. The market has managed a close above its 20dma (Sensex – 18079 and Nifty – 5411) and as a result the short term trend has turned up.

 

Both the indices are encountering a Resistance zone and even in the third attempt, the market has failed to give a closing above this zone. This zone (18559-18582) is created by 38.2% of the medium term fall from 20664 to 17295 and 61.8% of the shorter term fall from 19340 to 17295 for the Sensex. For Nifty the Resistance zone (5561-5563) is created by 38.2% of the medium term fall from 6181 to 5177 and 61.8% of the shorter term fall from 5801 to 5177. Thus for any uptrend to resume, it is imperative that the market closes above the resistance zone.

 

 

Even if the market is able to cross the current resistance zone, it will encounter another strong resistance zone formed due to convergence of 50dma, 200dma and a presence of Trendline resistance. For Sensex that resistance zone is 18835-18863 and for Nifty the resistance zone falls at 5643-5653. This zone will be acting as a litmus test for the market as both the medium and long term moving averages are contained in this zone. Any close above this will not only make medium term trend positive but also the long term trend.

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It is possible that both indices might move lower after testing the resistance zone. Both the indices will then retest the bottom made i.e. Sensex 17295 and Nifty 5177. In Bear markets, the bottoms are normally breached and if that happens then we have to find lower support zones. Hence if we consider the medium term rise from 13219-21108 for the Sensex and 3918 to 6338 for the Nifty, then the retracement levels will be 18094-17163-16233 for the Sensex and 5414-5128-4842 for the Nifty. If we consider the entire rise from 7697 to 21108 for the Sensex and 2252 to 6338 for the Nifty, then the correction levels for the Sensex will be at 15985-14402-12820 and 4777-4295-3813 for the Nifty. Thus in case, the low of Sensex 17295 and Nifty 5177 is breached; the Sensex is likely to test the cluster of supports emerging between 16233-15985 and Nifty between 4842-4777.

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Oscillators are painting a mixed picture. MACD, even though in negative territory continues with its Buy signal. The ROC is positive and continues in its Buy mode. RSI has increased to 52 and has signaled a Buy. Stochastic Oscillator is in a Buy mode as %K is above %D. Buy %K is at 88 and hence overbought. Money Flow is at 58 and continues in its buy mode, suggesting money flowing in. OBV is a lead indicator and has also given a Buy signal. Both the indices went near the upper end of the Bollinger Band before falling down. ADX has fallen to 19 suggesting that the downtrend has lost majority of its strength. The Directional Indicators are in Buy mode as +DI is above –DI.

 

 

Nifty OI PCR has improved to 1.32. Highest Call writing is seen at 5600 strike and Put writing at 5400 and 5300 strikes. This suggests that 5600 on the upside will act as a strong resistance to overcome and some support can be expected between 5400 and 5300, if the market falls.

 

The Trendline Resistance for the Sensex is at 18839. The Trendline Support is at 17405.

 

The Trendline Resistance for the Nifty is at 5643. The Trendline Support is at 5210.

 

For the week ahead, Sensex will find Support at 18135-17819-17394 and will find Resistance at 18779-19074-19340.

 

 

For the week ahead, Nifty will find Support at 5431-5329-5210 and will find Resistance at 5629-5714-5801.

INDEX LEVELS:

 S3S2S1CLOSER1R2R3
Nifty5210532954315538562957145801
Sensex17394178191813518486187791907419340

LAST WEEKS RECOMMENDATIONS:

Once again majority of the targets were achieved except for Educomp which just about missed reaching the target. The star performer for the week was Triveni Engg which went up by an astonishing 22%. 

STOCKReco. PriceTgtReachedLot SizeProfit
Buy Pantaloon2772902971000Rs.20,000
Buy Educomp495509504500Rs.4,500
Buy ICICI98610231046250Rs.15,000
Buy IVRCL6877782000Rs.20,000
Buy Triveni87961072000Rs.40,000
    TotalRs.99,500

THIS WEEKS RECOMMENDATIONS:

Since there will be lot of uncertainty in the coming week, it is advised to hedge one/s position. One can use Nifty Futures to hedge.

STOCKCMPSLTgt-1Tgt-2
Buy HeroHonda1536151915721599
Buy IndianBnk222219228234
Buy GSFC366360379393
Buy ReLMedia146143153161
Buy IndusInd238235245253

WATCH OUT FOR:

Hero Honda
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GSFC

 

 

 

  

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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