Archives : ON THE BRINK OF BEARISH BREAKOUT - 17/06/2011.

ON THE BRINK OF BEARISH BREAKOUT – 17/06/2011. 

INFLATION : A MAJOR CONCERN.

 

In a move to arrest surging inflation, RBI increased its benchmark Repo rate by 25bps to 7.5% and also increased the Reverse Repo by 25bps to 6.5%. A further increase in interest rates cannot be ruled out, if the inflation continues its upward journey. Keeping the inflation under check is now the top priority of the RBI, while maintaining growth seems to have taken a backseat.

 

JUST ABOVE SUPPORT.

 

The market did not take very kindly to the RBI move and slipped lower. In the process, the market has managed to change the short term trend to down. As a result all the three short term, medium term and long term trend are now in the same direction and that is down. Pattern analysis suggests that strong bearish distribution pattern is about to get completed once the Nifty closes below 5321 and Sensex below 17783. This level holds lot of significance as not only the intermediate pattern but also the long term bearish Head & Shoulders pattern will get completed below Nifty 5321.

 

MINOR PULL-BACKS - AN EXIT OPPORTUNITY.

 

Next week will be a critical test for the market as the support zone between Nifty 5353-5321 will be tested. As many medium and long term supports are emerging in this support zone, a decisive break will spell trouble for the Bulls. In the mean while, one cannot rule out possibilities of minor pull-backs, but keeping the negative trend of the market in mind, one should use these pull-backs as an exit opportunity or to go short at higher resistance levels.

 

 

 


ON THE BRINK OF BEARISH BREAKOUT – 17/06/2011. 

INFLATION : A MAJOR CONCERN.

 

In a move to arrest surging inflation, RBI increased its benchmark Repo rate by 25bps to 7.5% and also increased the Reverse Repo by 25bps to 6.5%. A further increase in interest rates cannot be ruled out, if the inflation continues its upward journey. Keeping the inflation under check is now the top priority of the RBI, while maintaining growth seems to have taken a backseat.

 

JUST ABOVE SUPPORT.

 

The market did not take very kindly to the RBI move and slipped lower. In the process, the market has managed to change the short term trend to down. As a result all the three short term, medium term and long term trend are now in the same direction and that is down. Pattern analysis suggests that strong bearish distribution pattern is about to get completed once the Nifty closes below 5321 and Sensex below 17783. This level holds lot of significance as not only the intermediate pattern but also the long term bearish Head & Shoulders pattern will get completed below Nifty 5321.

 

MINOR PULL-BACKS - AN EXIT OPPORTUNITY.

 

Next week will be a critical test for the market as the support zone between Nifty 5353-5321 will be tested. As many medium and long term supports are emerging in this support zone, a decisive break will spell trouble for the Bulls. In the mean while, one cannot rule out possibilities of minor pull-backs, but keeping the negative trend of the market in mind, one should use these pull-backs as an exit opportunity or to go short at higher resistance levels.

TECHNICALLY SPEAKING. 

The Sensex opened the week at 18242, made a high of 18380, a low of 17844 and closed the week at 17870. The Sensex lost 398 points on a weekly basis. Similarly Nifty opened the week at 5469, made a high of 5520, a low of 5355 and closed the week at 5366. The Nifty closed with a loss of 119 points on a weekly basis.

 

After making two neutral formations for two consecutive weeks, both the indices made a decisive Bearish big black body candle for the week. As far as the daily charts are concerned, both Sensex and Nifty have made a Bearish black body candle on Friday. Sensex, as a matter of fact, has managed to form a Bearish Opening Black body Marubuzo. In short, candle stick analysis suggests bearishness to continue.

 

The market is well below the long term average i.e. 200dma (Sensex – 19182 and Nifty – 5757), medium term average of 50dma (Sensex – 18649 and Nifty – 5595) and now has closed even below the short term average of 20dma (Sensex – 18245 and Nifty – 5476). As a result, the short term trend has turned down and is now in unison with the medium term and the long term trends which continue to remain down. Short term trend will now turn up only when the Sensex closes above 18245 and Nifty 5476.

 

There exists a strong support in the zone of Sensex 17821-17783 and Nifty 5353-5321. These support zones are a result of convergence of intermediate and long term demand lines. This is a very critical support zone and the market has been respecting it for the past 18months. A breach of this support zone will confirm a Bearish Head and Shoulders Reversal pattern not only in intermediate timeframe but also in the long term timeframe. This will be herald a strong bear onslaught. Sensex will then have a minimum target of 15762 and Nifty 4721.

 

Pattern formation is a dynamic process and the market had already 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.

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 18649-18799 and Nifty 5595-5636. Above this, there is a second resistance zone formed by the convergence of 50% of the entire fall, trendline resistance and 200dma. Thus Sensex 19182-19210 and Nifty 5757-5776 forms a Second Resistance Zone. Majority of the oscillators are giving Sell signals. MACD and ROC are both negative and in Sell mode. RSI has fallen to 36 and continues with its Sell mode. Money Flow (31) is in Sell mode and so does the OBV. Stochastic oscillator has given a Sell signal as %K has cut %D from above. One thing to remember is %K is in oversold territory and a minor bounce back cannot be ruled out. The Directional Indicators are in Sell mode as +DI is above –DI. -DI is gathering strength suggesting that the downtrend is gaining strength.  The ADX is at 17 which suggest a weak trend. 

Nifty O.I. PCR is quite low at 1.03. Highest Open Interest build-up has shifted to 5100 strike price Put, once the support of 5400 was taken out by the market. This suggests that the market is likely to find support at lower levels around 5100.

 

The Trendline Resistance for the Sensex is at 18635. The Trendline Support is at 17783.

 

The Trendline Resistance for the Nifty is at 5605. The Trendline Support is at 5321.

 

For the week ahead, Sensex will find Support at 17678-17469-17276 and will find Resistance at 18120-18380-18636.

 

For the week ahead, Nifty will find Support at 5310-5232-5160 and will find Resistance at 5443-5517-5605.

INDEX LEVELS: 

 S3S2S1CLOSER1R2R3
Nifty5160523253105366544355175605
Sensex17276174691767817870181201838018636

LAST WEEKS RECOMMENDATIONS:

All the three pairs did well and all the recommendations achieved their targets with the possible exception of Hero Honda. 

PAIR NO.STOCKRec.priceTgt Reached Lot sizeProfit
1BuyCentTex345361366500Rs. 10,500
SellBhushStl419408398500Rs. 10,500
2BuyPantaloon284300312500Rs. 14,000
SellJsWSteel898866861250Rs. 9,250
3BuyTalwlkar2492612611000Rs. 12,000
SellHeroHnda172416981708125Rs. 2,000
      ProfitRs.58,250

THIS WEEKS RECOMMENDATIONS:

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

PAIR NO.STOCKCMPSLTGT - 1TGT -2
1BuyHPCL382376392403
SellOBC317324307296
2BuyGodrejInd202198209216
SellM&M644658624604
3Buy ReLInfra580574592605
SellHDFC638645626612
 

WATCH OUT FOR:

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OBC

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