Archives : 4359-4731 - TRADING RANGE - 14/08/2009.

4359-4731 - TRADING RANGE - 14/08/2009.

Our readers will do well to recollect that we had clearly stated that the market will move down and bounce back from very strong support zone of Nifty 4420-4365; and the market exactly did the same thing. On Wednesday the market went lower tested the support at 4359 and bounced back very strongly. The lower shadow in the Wednesday’s candle show strong support at lower levels. There was strong buying accompanied by short covering which pulled the indices higher.

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MARKET MOVING IN A RANGE.

The pull back from the lows witnessed on Wednesday around Nifty-4359 and Sensex-14701 saw the indices reaching around the previous highs. Thus both Sensex and Nifty are trading in a range i.e. between Sensex 14701-16002 and Nifty 4359-4731. A substantial move will be witnessed if the market gives a breakout in either direction, till then the strategy should be to buy near the lower side of the range and sell near the top end of the range.

GOOD NEWS FOR THE ECONOMY.

Even as the scarce monsoon casts a shadow over the market, a silver lining has emerged in the form of IIP nos. The IIP nos. clearly shows a revival as it clocked 7.8% growth in June and thus reversing the bleak trends since September 2008. It surprised the market by a very wide margin as the industrial growth at 7.8% was way above 5.45% a year ago. With the monsoon casting a shadow on agriculture, this kind of industrial growth has partly offset the adverse impact of a weak monsoon.

 

Market also cheered, as the FM on Wednesday unveiled a road map for reforms of direct taxes, which promises to drastically cut the tax liability by raising tax slabs which will encourage more people to pay up. Also on the positive side the corporate tax has been proposed to cut to 25%. The market cheered this positive announcement and staged a dramatic recovery.

MARKET TECHNICALS. 

The Sensex opened at 15287, made a high of 15545, made a low of 14701 and closed the week at 15411. The weekly gain was 251 points.

The Nifty opened at 4486, made a high of 4619, made a low of 4359 and closed the week at 4580. The weekly gain was 99 points.

 

Both Sensex and Nifty have formed a small white body with long lower shadow on the weekly charts. The long lower shadow is a result of buying coupled with short covering at lower levels. The market is moving in a range of Sensex 14701-16002 and Nifty 4359-4731.

 

The Sensex dipped to a low of 14701 on Wednesday and found strong support in the form of higher bottom (14888-14786). Besides this, the 50dma and 20dma are both converging around 14800 levels along with strong Trendline support at 14786. Thus, the zone between14701-14917 has multiple supports and panic will set in only if these support range is broken.

 

The Nifty dipped to a low of 4359 which was the lower end of our support range, but managed to bounce back successfully from that zone. Besides higher bottoms at 4420-4365, the 50dma and 20dma also converge around 4420 levels and there exists a strong Trendline support at 4422. Thus, the market will see a deeper cut only if this support zone of 4420-4359 is conclusively broken.

 

The indicator like MACD even though positive and continuing with the buy signal does not inspire much confidence as it continues to move lower.

 

The Nifty O.I.PCR is slightly lower at 1.07. Strong CALL writing is being witnessed at strikes of 4700 and PUT writing is seen at strike of 4300. It clearly suggests that the market will be trading in a range between 4300 and 4700.

 

Sensex will face resistance at 15600-15868-16002 and will find support at 15207-14917-14701.

 

Nifty will face resistance at 4649-4693-4731 and will find support at 4527-4420-4359.

INDEX LEVELS:

 S3S2S1CLOSER1R2R3
Nifty4359442045274580464946934731
Sensex14701149171520715411156001586816002

Strategy Corner.

IFCI (53) is expected to reach a target of 60-64. So we construct a Bull Call Spread for IFCI by buying 55 CALL at Rs.2 and selling 60 CALL at Rs. 1. The cost of construction will be Rs.1 (Rs.7,880) which will be the maximum loss and maximum profit will be Rs.4 (Rs.31,520).

 LAST WEEKS RECOMMENDATIONS. 

Despite just three days all our targets were achieved with ease. The star performer of the week was M&M which went down up by astonishing 11%. 

STOCKReco. PriceTgtReachedLot Size Profit
Sell Ind Info1301221212500Rs.22,500
Sell HdfcBnk139013601355200Rs.7,000
Sell M&M835761745312Rs.28,080
Sell H.Honda147914421385200Rs.18,800
Sell Grasim272325902580176Rs.25,168
    PROFITRs.1,01,548

THIS WEEK’S RECOMMENDATIONS:

STOCKCMPSLTgt-1Tgt-2
Buy GSPL75728188
Buy BEL1493144015421635
Buy JSW Steel738711782825
Buy Nucleus 110105120128
Buy EKC194190202211
Buy KLG 186180197207

WATCH OUT FOR:

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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