Archives : RISING THREE METHOD - 25/03/2011.

RISING THREE METHOD – 25/03/2011.

In a surprising rally last week, both the indices managed to give a bullish breakout. Both Sensex and Nifty conquered the 50dma, gave a Symmetrical Triangle breakout, and confirmed a bullish continuation pattern breakout called Rising Three Method. As a result, the short and medium term bullish breakout has been confirmed, while the long term trend continues to be down. The first sign of a long term trend reversal will be the bullish crossover of the 200dma.

 


RISING THREE METHOD – 25/03/2011.

In a surprising rally last week, both the indices managed to give a bullish breakout. Both Sensex and Nifty conquered the 50dma, gave a Symmetrical Triangle breakout, and confirmed a bullish continuation pattern breakout called Rising Three Method. As a result, the short and medium term bullish breakout has been confirmed, while the long term trend continues to be down. The first sign of a long term trend reversal will be the bullish crossover of the 200dma.

TECHNICALLY SPEAKING. 

The Sensex opened the week at 17984 made a high of 18858, a low of 17792 and closed the week at 18815. The Sensex gained an astonishing 937 points on a weekly basis. Similarly Nifty opened the week at 5408, made a high of 5667, a low of 5348 and closed the week at 5654. The Nifty too closed with a strong gain of 281 points on a weekly basis.

 

On the daily charts both the indices have formed a big white body candle on Friday, which will have bullish implication. On the weekly charts as expected and written in last weeks article, both the indices completed a bullish continuation pattern called the Rising Three Methods. For this formation to complete, the Sensex needed a close above 18736 and Nifty above 5538. Sensex closed at 18815 and Nifty at 5654. This has confirmed the bullish continuation breakout. Normally this formation, would take five weeks to complete on a weekly chart. The second, third and fourth weeks candle will be almost like rest days as they are within the first weeks trading range. In this case, one of the three weeks candle is missing and we have four candles forming Rising Three Methods.

 

The market has managed a close above the 50dma (Sensex – 18331 and Nifty – 5495) and as a result the medium term trend has turned up. The short term trend had already turned up two weeks back, when the market managed a close above the 20dma (Sensex – 18238 and Nifty – 5471).  Now the market is well on course to move higher and test the 200dma (Sensex – 18950 and Nifty – 5688).  Only a close above the 200dma will confirm a reversal of the trend from down to up. Till then, the long term down trend continues.

 

Both the indices will face strong resistance at the 50% retracement of the fall from 20664 to 17295 for the Sensex and 6181 to 5177 for the Nifty. This level for the Sensex is at 18980, which is very close to the 200dma (18950). The corresponding level for the Nifty falls at 5679 which is almost coinciding with the 200dma (5688). Hence we find strong resistance zone being formed for the Sensex at 18950-18980 and Nifty at 5679-5688. 61.8% retracement of the fall from 20664 to 17295 for the Sensex and 6181 to 5177 for the Nifty coincides with a minor top, which will act as a second resistance zone. The 61.8% fall for the Sensex falls at 19377 which is very near to previous top of 19340 and the corresponding level for the Nifty falls at 5798 which is almost near its previous high at 5801. Thus we have second resistance zone at Sensex 19340-19377 and Nifty 5798-5801.

 

The bullish crossover of the 200dma will be the first step in the long term trend turning upwards. But the long term trend reversal will occur when the Sensex crosses and closes above 61.8% of the entire fall of Sensex from 21108-17295 and Nifty from 6338-5177. These levels are 19651 for the Sensex and 5894 for the Nifty.

 

As far as the support goes, this weeks low which is the current higher low is almost coinciding with the trendline support. For Sensex the current higher low is at 17792 and the corresponding level for the Nifty is at 5348. These levels are likely to act as strong support in the short term for both the indices.

 

Both the indices are moving in a Rising Channel formation. The Channel Top will act as resistance (Sensex – 19067 and Nifty – 5706). The Channel Bottom will act as support (Sensex – 17823 and Nifty 5348). In the very short term timeframe, both the indices have given a Bullish Symmetrical Triangle breakout and the target for that will be Sensex 19489 and Nifty 5853.

 

Majority of the oscillators have signaled a Buy. MACD has just given a Buy and just about managed to turn positive. ROC too has just turned positive on Friday and as a result, given a Buy signal. RSI (59) too is above the centerline and is in a Buy mode. Stochastic oscillator too has signaled a buy as %K is above %D. %D which is the slow stochastic, has still not entered overbought territory, whereas %K which is the fast stochastic is in overbought territory. The OBV has given a Buy signal this Friday, whereas the Money Flow continues to be in Buy mode. The Directional Indicators too, are in Buy mode as +DI has cut –DI from below. The ADX at 15 maintains that the trend is weak. Bollinger Band has given a Buy signal as the prices have managed a close above the higher Bollinger Band.

 

Nifty O.I. PCR has increased to 1.68 which is a result of high amount of bullishness in the market. Put writing has become more profitable and as a result Put writing has increased as compared to Call writing. For the next month series there is strong Call writing at 5800 strike and very high Put writing at 5400 strike. Thus for the next month, 5400 should act as support and 5800 as a resistance.

 

The Trendline Resistance for the Sensex is at 19067. The Trendline Support is at 17823.

 

The Trendline Resistance for the Nifty is at 5706. The Trendline Support is at 5348.

 

For the week ahead, Sensex will find Support at 18373-17920-17469 and will find Resistance at 19074-19340-19574.

 

For the week ahead, Nifty will find Support at 5522-5373-5232 and will find Resistance at 5721-5801-5874.

INDEX LEVELS:

 S3S2S1CLOSER1R2R3
Nifty5232537355225654572158015874
Sensex17469179201837318815190741934019574

LAST WEEKS RECOMMENDATIONS:

Majority of the stocks hit their stoplosses as the market went from strength to strength.

THIS WEEKS RECOMMENDATIONS:

STOCKCMPSLTgt-1Tgt-2
Buy JindalS-W9449189751009
Buy FinTech823807846870
Buy BoB927913945964
Buy LiCHsg205201213222
Buy BRFL264260272280
  

WATCH OUT FOR:

Jindal S-W
.
 *
Fin Tech

 

BRFL

 

 

Chennai Petro
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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