Archives : TRENDS NOT IN RESONANCE - 10/06/2011.

TRENDS NOT IN RESONANCE – 10/06/2011.

DIFFICULT TO TRADE. 

Traders were a frustrated lot this week as their stoplosses got triggered on both sides. The sideways market generates lot of whipsaws and hence become difficult to trade. The market gained during the early part of the week but gave up major gains as the week passed by. On Friday, the Nifty breached the immediate last low of 5479 during intraday but somehow managed a close above that level. One may argue about various reasons behind such market movement like weak global markets and poor Industrial Growth Data. But the real reason for such market behaviour lies in its trend analysis. Trend analysis clearly suggests that the short term and higher term trends are not in resonance and hence the market experiences such volatile movements.

 

  

TRENDS NOT IN RESONANCE – 10/06/2011. 

DIFFICULT TO TRADE.

Traders were a frustrated lot this week as their stoplosses got triggered on both sides. The sideways market generates lot of whipsaws and hence become difficult to trade. The market gained during the early part of the week but gave up major gains as the week passed by. On Friday, the Nifty breached the immediate last low of 5479 during intraday but somehow managed a close above that level. One may argue about various reasons behind such market movement like weak global markets and poor Industrial Growth Data. But the real reason for such market behaviour lies in its trend analysis. Trend analysis clearly suggests that the short term and higher term trends are not in resonance and hence the market experiences such volatile movements.

TECHNICALLY SPEAKING. 

The Sensex opened the week at 18344 made a high of 18545, a low of 18182 and closed the week at 18268. The Sensex lost 108 points on a weekly basis. Similarly Nifty opened the week at 5504, made a high of 5570, a low of 5457 and closed the week at 5485. The Nifty closed with a loss of 31 points on a weekly basis.

For the second week in a row both the indices formed a neutral Spinning Top formation. This time it was a small black body Spinning Top as compared to a small white body Spinning Top last week. Once again there is a longer upper shadow, which signifies selling at higher levels. On the daily charts, both Sensex and Nifty have formed a Bearish Black body candle on Friday. Thus the trend in the very short term time frame remains negative.

Sensex has made a Rising Gap while moving upwards, between 18072-18087. This gap is expected to provide support in case of a fall.

One can still consider the market to be in a pull-back mode as long as the low of 17786 for the Sensex and 5328 for the Nifty is not violated. We have to consider a pull-back of the fall from 19811-17786 for the Sensex and 5944-5328 for the Nifty. The pull-back levels are placed at 18560-18799-19038 for the Sensex and 5563-5636-5709 for the Nifty. If we consider the entire fall from 21108 to 17295 for the Sensex and 6318 to 5177 for the Nifty then the pull-back levels are 18751-19202-19651 for the Sensex and 5621-5758-5895 for the Nifty.

The market is well below the long term average i.e. 200dma (Sensex – 19181 and Nifty – 5757) and medium term average of 50dma (Sensex – 18788 and Nifty – 5636). But the market has just closed above the short term average of 20dma (Sensex – 18268 and Nifty – 5480). As a result, the short term trend has just managed to stay positive while the medium term and the long term trends continue to remain down. The medium and long term trends try and impose themselves on the short term trend and that explains the volatility. As the medium term and the long term averages are above the current market price, they will act as resistances.

There exists a strong support line in the form of demand trendline at Sensex 17887 and Nifty 5351. This is a very critical support line and the market has been respecting it for the past 18months. The market tested this trendline two weeks back and managed a bounce-back from this trendline. A breach of this support line will confirm a Bearish Head and Shoulders Reversal pattern. This will be herald a strong bear onslaught.

On the higher side the 50% pull-back level of the immediate fall, 38.2% of the entire fall, and 50dma all converge and are placed nearby, thus forming First Resistance Zone i.e. from Sensex 18751-18799 and Nifty 5621-5636. Above this, there is a second resistance zone formed by the convergence of 50% of the entire fall, trendline resistance and 200dma. Thus Sensex 19181-19210 and Nifty 5757-5776 forms a Second Resistance Zone. 

The market completed a small Bearish Head & Shoulders and the target for which is Sensex 16573 and Nifty 4964. The target for this Bearish Head and Shoulders will remain intact as long as the market remains below Sensex 18724 and Nifty 5605.

Oscillators are giving mixed signals. MACD continues in its Buy mode even though in negative territory. ROC is positive and hence continues to remain in Buy mode. RSI has fallen below 50 and is at 45, giving a Sell signal. Money Flow (46) has given a Sell signal while the OBV continues to remain in Sell mode. Stochastic oscillator has given a Sell signal as %K has cut %D from above. The Directional Indicators have given a fresh Sell signal as +DI has cut –DI from above. The ADX has turned lower at 17 and suggests a consolidation. It is advisable to avoid trading if the ADX is below both the Directional Indicators. 

Nifty O.I. PCR is at 1.22. Highest Open Interest build-up is seen at 5400 Put followed by 5000 Put. Highest Call writing is seen at the strike of 5800. This suggests that the market is likely to move in a range of 5400 to 5800. In case the expected support at 5400 is breached then the next strong support will emerge around 5000.

The Trendline Resistance for the Sensex is at 19210. The Trendline Support is at 17887.

The Trendline Resistance for the Nifty is at 5776. The Trendline Support is at 5351.

For the week ahead, Sensex will find Support at 18020-17786-17546 and will find Resistance at 18545-18794-19074.

For the week ahead, Nifty will find Support at 5401-5319-5232 and will find Resistance at 5563-5634-5721.

INDEX LEVELS: 

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

5232

5319

5401

5485

5563

5634

5721

Sensex

17546

17786

18020

18268

18545

18794

19074

LAST WEEKS RECOMMENDATIONS:

STOCK

Reco. Price

Tgt

Reached

Lot Size

Profit

Buy Glaxo

2394

2434

2424

125

Rs.3,750

Buy MRPL

76

79

78

4000

Rs.8,000

Buy IndusInd

267

275

269

1000

Rs.2,000

Buy GMDC

146

151

152

2000

Rs.12,000

Buy IndoTech

159

167

164

2000

Rs.10,000

Total

Rs.35,750

THIS WEEKS RECOMMENDATIONS:

This week is expected to be very volatile and hence Pair Strategies are suggested. 

PAIR NO.

STOCK

CMP

SL

TGT - 1

TGT -2

1

Buy

CentTex

345

340

353

361

Sell

BhushanStl

419

425

408

396

2

Buy

PantaloonRet

284

279

292

300

Sell

JsW Steel

898

909

883

866

3

Buy

Talwalkar

249

242

261

273

Sell

HeroHonda

1724

1743

1698

1671

WATCH OUT FOR:

Pantaloon Retail

JSW Steel

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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