Archives : DIVERGENCE IN INDICES CONTINUE - 06/10/2017.

DIVERGENCE IN INDICES CONTINUE - 06/10/2017.

 

WAIT AND WATCH THIS WEEK.

 

Just when it seemed that the higher bottom (9685) in Nifty is in danger, the bulls sprang a surprise. The market bounced back this week and in the process recovered lost ground. As a result the market is just short of critical levels of Sensex 31900 and Nifty 10000. It seems like just a matter of time before the above mentioned levels are taken out, but it will interesting to see if the Bears can put up a fight. The reason for the hope for Bears is the divergence in movement observed between the two indices Sensex and Nifty. Nifty has managed to close above the critical Trendline and the short term average of 20dma as well as the medium term average of 50dma; whereas that is not the case with Sensex as it is yet to close not only above the critical Trendline but also the 20dma and 50dma. So ‘wait and watch’ as the next week will be crucial for the market.



DIVERGENCE IN INDICES CONTINUE - 06/10/2017.

 

WAIT AND WATCH THIS WEEK.

 

Just when it seemed that the higher bottom (9685) in Nifty is in danger, the bulls sprang a surprise. The market bounced back this week and in the process recovered lost ground. As a result the market is just short of critical levels of Sensex 31900 and Nifty 10000. It seems like just a matter of time before the above mentioned levels are taken out, but it will interesting to see if the Bears can put up a fight. The reason for the hope for Bears is the divergence in movement observed between the two indices Sensex and Nifty. Nifty has managed to close above the critical Trendline and the short term average of 20dma as well as the medium term average of 50dma; whereas that is not the case with Sensex as it is yet to close not only above the critical Trendline but also the 20dma and 50dma. So ‘wait and watch’ as the next week will be crucial for the market.

 

TECHNICALLY SPEAKING.

 

Sensex opened the week at 31537, made a high of 31844, low of 31440 and closed the week at 31814. Thus it closed the week with a loss of 531 points. At the same time the Nifty opened the week at 9893, made a high of 9989, low of 9831 and closed the week at 9979. Thus the Nifty closed the week with a loss of 191 points.

 

On the daily charts, both the indices have formed an Opening White body Marubuzo which indicates continuation of upward movement. On the weekly charts both the indices have formed a Bullish Harami pattern. It is a bullish reversal pattern which requires a confirmation in the form a real white body candle in the next week. Thus candlestick study indicates a bullish bias in the near term.

 

Both the indices have taken support at the higher bottom at Sensex 31128 and Nifty 9685. A break of this support will interrupt the higher top higher bottom formation sequence for the indices for the first time since December 2016. As a result, we will be looking at the Correction of the entire rally of Sensex 7000 points and Nifty 2200 points. The relevant Correction levels are placed at Sensex 30024-29202-28379 and Nifty 9306-9036-8767.

 

Last week saw the indices completing a Bearish Rising Broadening pattern. As a result the pattern has a downside target of Sensex 29664 and Nifty 9237. The above targets will be achieved as long as the Sensex remains below 32686 and Nifty 10138.

 

The current Rally has produced two major Bullish Gaps. The first Bullish gap is on daily charts, between Sensex 29780-29681 and Nifty 9250-9225 will act as strong Support. The second Bullish Gap which is more critical as it is also a Weekly Gap i.e. between Sensex 29356-29098 and Nifty 9060-8977 hold the key to the long term trend.

 

On the weekly formation, both the indices had completed a Cup and Handle formation and the targets are Sensex 34677-37554 and Nifty 10536-11413. If one considers the Cup and Handle formation of 7 years from 2007 to 2014, the target for that pattern falls at Sensex 34715 and Nifty 10462. The Golden Ratio target of the current pattern weekly pattern of 2 years is at Sensex 34677 and Nifty 10536. Thus in the medium term one can expect a test of the above targets i.e. Sensex 34677-34715 and Nifty 10462-10536.

 

MACD and Price ROC are both negative and in Sell mode. RSI (53) suggests bullish momentum. ADX has reduced to 20, which suggests current trend is not strong enough. Directional Indicators continue in Sell mode. MFI (47) suggests Negative Money Flow. OBV continues to make lower top lower bottom formation. Sell signal in Bollinger Band for the Nifty has got negated this Friday but the Sell continues for the Sensex. Thus Oscillators are suggesting a bearish bias.

 

This week, both the indices flirted with the short term average of 20dma (Sensex – 31873 and Nifty – 9974) and the medium term average of 50dma (Sensex – 31860 and Nifty – 9944). However, only Nifty managed to overcome and close above them whereas the Sensex has closed below both the 20dma and 50dma. Both the indices continue to remain above the long term average of 200dma (Sensex - 30039 and Nifty – 9311). Thus there is a divergence in trend observed in Sensex and Nifty for the short term and medium term timeframes. But the trend in the long term timeframe continues to remain bullish.

 

Options data for October series indicate highest Call Open Interest is at the strike of 10000 whereas the highest Put build-up has shifted higher at 9800. Thus Options data suggests a trading range with resistance coming at 10000 & support at 9800.

 

THIS WEEKS RECOMMENDATIONS:

 

STOCK

CMP

SL

Tgt-1

Tgt-2

Buy Sun Pharma

530

517

550

571

Buy Tata Chem

678

662

702

727

Buy Escorts

697

681

721

747

Buy JindaL SteeL

152

149

157

163

Buy NaLco

81

79

85

89

  

INDEX LEVELS:

 

 

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

9685

9783

9881

9979

10088

10178

10262

Sensex

30889

31220

31522

31814

32131

32444

32778

 

WATCH OUT FOR:

 

Sun Pharma
 
Escorts
 
Jindal 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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