Archives : BEAR GRIP TIGHTENS - 12/08/2011.
BEAR GRIP TIGHTENS – 12/08/2011.

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PULL-BACK : A SELLING OPPORTUNITY.

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The global financial markets went into a tailspin on Monday on the back of the news that the S & P downgraded the US for the first time in 70 years. Our market too opened with a big gap-down and fell below the 5000 level for the first time in a year. The bearishness is taking a toll on the market but the most affected are the small and mid cap stocks. Since the market is oversold, minor pull-backs cannot be ruled out. Such is the bear grip over the market that any minor pullbacks the market may witness, will be sold into.

 

 


BEAR GRIP TIGHTENS – 12/08/2011.

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PULL-BACK : A SELLING OPPORTUNITY.

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The global financial markets went into a tailspin on Monday on the back of the news that the S & P downgraded the US for the first time in 70 years. Our market too opened with a big gap-down and fell below the 5000 level for the first time in a year. The bearishness is taking a toll on the market but the most affected are the small and mid cap stocks. Since the market is oversold, minor pull-backs cannot be ruled out. Such is the bear grip over the market that any minor pullbacks the market may witness, will be sold into.

 

TECHNICALLY SPEAKING. 

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The Sensex opened the week at 16907, made a high of 17256, a low of 16432 and closed the week at 16839. The Sensex lost 466 points on a weekly basis. Similarly Nifty opened the week at 5083, made a high of 5204, a low of 4946 and closed the week at 5072. The Nifty too closed with a weekly loss of 139 points.

 

Both Sensex and Nifty have formed a Big Opening Black body Marubuzo on the daily charts on Friday. On the weekly charts, the Nifty has formed a Bullish Doji Star which is a bullish reversal pattern but it requires confirmation in the form of a white body candle in the next week. Sensex has formed a Spinning Top formation having a small black body which is on similar lines as the formation in the Nifty. If the Sensex forms a white body candle in the next week, then we will have a confirmation of bullish reversal.

 

Both the indices have left behind a second Measuring Gap i.e. between Sensex 17664-17358 and Nifty 5323-5229. If we consider the start of the rally from Sensex 19131 and Nifty 5740, then the target for the current rally falls at Sensex 15891 and Nifty 4812.

 

The market is well below the short term average of 20dma (Sensex – 17963 and Nifty – 5408), medium term average of 50dma (Sensex – 18214 and Nifty – 5475) and long term average of 200dma (Sensex – 18865 and Nifty – 5661). As a result the short term, medium term and the long term trends remain down.

 

Since some of the oscillators are oversold and there is a Bullish Belt Hold pattern formation on the Nifty (formed on Tuesday), one can assume that a minor pull-back is on. Assuming that the low made by Sensex (16432) and Nifty (4946) is not breached, one can expect a minor recovery of the immediate fall from Sensex 19131 to 16432 and from Nifty 5740 to 4946. The pull-back levels are 17463-17782-18100 for the Sensex and 5249-5343-5437 for the Nifty.

 

If one considers the fall from a slightly higher degree i.e. from 19811 to 16432 for the Sensex and 5944 to 4946 for the Nifty; then the correction levels in that case will be 17723-18122-18520 for the Sensex and 5327-5445-5563 for the Nifty. Thus 50% of the immediate fall coincides with 38.2% of the intermediate fall forming a confluence zone. This zone is further strengthened by the presence of a third bearish falling gap between Sensex 17664-17358 and Nifty 5323-5229. Thus there is a strong Resistance zone formed between Sensex 17664-17782 and Nifty 5323-5343.

 

If we consider the entire fall from Sensex 21108 to 16432 and Nifty 6338 to 4946, then the Correction levels in that case are 18218-18770-19322 for the Sensex and 5478-5642-5806 for the Nifty. The 38.2% of the entire fall matches with the 61.8% of the immediate fall and 50% of the intermediate fall, thus forming a strong confluence zone. This zone is further strengthened by the presence of the 50dma. Thus we have a very strong second Resistance Zone between Sensex 18100-18218 and Nifty 5437-5478.

In case the current low (Sensex 16432 and Nifty 4946) is breached, then the Sensex and Nifty are likely to fall further upto next strong support zone atleast. From a broader perspective the market is correcting the Sensex rise from 13219 to 21108 and Nifty from 3918 to 6338. The correction levels in that case are 18094-17163-16233 for the Sensex and 5414-5128-4842 for the Nifty. In case the fall continues then the 61.8% of the above mentioned rise coincides with the 38.2% level of the entire rise from 7697 to 21108 for the Sensex and 2252 to 6338 for the Nifty. The 38.2% level falls at 15985 for the Sensex and 4777 for the Nifty. There is an intermediate bottom formed at Sensex 15960 and Nifty 4786. This helps in forming a strong Support zone at Sensex 15960-16233 and Nifty 4777-4842. 

Both Sensex and Nifty had given a Bearish Head & Shoulders breakout two weeks ago. But last week the Bearish Descending Triangle also got completed. The validity for Bearish Head and Shoulders remains intact. The target for the same falls at 14651-13928 for the Sensex and 4357-4143 for the Nifty.

 

Majority of the oscillators are in Sell mode, while some are in oversold territory. MACD and ROC are both in negative territory and both continue with their Sell signals. RSI is at 28 and is in oversold territory. The Stochastic oscillator has just moved out of oversold territory and is signaling a Buy as %K cuts %D from below. Directional Indicators continue in their Sell mode. ADX has increased to 28 suggesting that the current downtrend has gathered strength. The Bollinger Band continues with its Sell signal given two weeks ago. Money Flow has fallen to 12 which is in oversold zone and suggests a minor recovery to happen in the very short term. The other lead indicator OBV continues with its Sell signal as it continues to make lower top, lower bottom formation.

 

Nifty O.I. PCR is at a low of 0.94. Put positions have shifted to the 5000 strike and Call writing is seen at 5300 strike. One can expect some support coming in at 5000 level and resistance at 5300 level. It clearly suggests a smaller range of 5000-5300 for the Nifty in the short term.

 

The Trendline Resistance for the Sensex is at 17392. The Trendline Support is at 15656.

 

The Trendline Resistance for the Nifty is at 5348. The Trendline Support is at 4798.

 

For the week ahead, Sensex will find Support at 16432-16002-15651 and will find Resistance at 17171-17493-17792.

 

For the week ahead, Nifty will find Support at 4946-4812-4693 and will find Resistance at 5160-5252-5348.

 

INDEX LEVELS:

 S3S2S1CLOSER1R2R3
Nifty4693481249465072516052525348
Sensex15651160021643216839171711749317792
 

LAST WEEKS RECOMMENDATIONS:

All the three pairs did very well. The Star Performer for the week was BF Utility which fell by a whopping 19%!!! 

PAIR NO.STOCKRec.priceTgt Reached Lot sizeProfit
1BuyPetLNG1741811762000Rs. 4,000
SellBFUtiL620550481500Rs. 69,500
2BuyOiL132113661371250Rs. 12,500
SellGrasim210620182015125Rs. 11,375
3BuyGMDC1651711662000Rs. 2,000
SellMphasis422407391500Rs. 15,500
      ProfitRs.1,14,875
 

THIS WEEKS RECOMMENDATIONS:

STOCKCMPSLTgt-1Tgt-2
Buy AsianPaints 3229319432733319
Buy Bata698684717731
Buy HeroHonda1890186719241959
Buy MunjalAuto163158171180
Buy JubiliantFood853836881911
 

WATCH OUT FOR:

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Hero Honda

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