Archives : RATE HIKE, FINALLY - 02/07/2010.
RATE HIKE, FINALLY – 02/07/2010.
 
RBI HIKES REPO, REVERSE REPO.  

In a delayed but expected move, RBI finally acted and raised the Repo and Reverse Repo rate by 25bps each. CRR was left untouched as there was liquidity tightness in the market. The rate hike was expected since the past two weeks. This time the RBI was behind the curve in reacting to the economic situation. This rate hike was a calibrated move as one can expect further interest rate hike of 25bps in credit policy meet in the last week of July. RBI has shifted focus on controlling inflation without hurting growth as the inflation was reaching very high levels. The inflation would increase further due to the fuel price hike in the last week and not to forget strong IIP numbers. RBI is now more worried about the upside risk to inflation than downside risk to growth.


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RATE HIKE, FINALLY – 02/07/2010.
 
RBI HIKES REPO, REVERSE REPO.  

In a delayed but expected move, RBI finally acted and raised the Repo and Reverse Repo rate by 25bps each. CRR was left untouched as there was liquidity tightness in the market. The rate hike was expected since the past two weeks. This time the RBI was behind the curve in reacting to the economic situation. This rate hike was a calibrated move as one can expect further interest rate hike of 25bps in credit policy meet in the last week of July. RBI has shifted focus on controlling inflation without hurting growth as the inflation was reaching very high levels. The inflation would increase further due to the fuel price hike in the last week and not to forget strong IIP numbers. RBI is now more worried about the upside risk to inflation than downside risk to growth.

 
RNRL - RPOWER TO MERGE.  

Just as the market closed on Friday, came the announcement to merge RNRL with Reliance Power. The merger was expected since the Supreme Court judgement and now it is happening. The board meeting is fixed on Sunday 4th July 2010. The merger is necessary for easier gas allocation. The market is interested in finding what will be swap ratio for the merger. If one goes according to book value, the merger ratio will be around 1:5 in favour of Reliance Power. But then what will be the final merger ratio will be anybody’s guess.

 
TECHNICALLY SPEAKING. 

The Sensex opened the week at 17577, made a high of 17794, a low of 17373 and closed the week at 17460. The Sensex gained lost 114 points on a weekly basis. Similarly Nifty opened the week at 5271, made a high of 5339, a low of 5210 and closed the week at 5237. The Nifty too closed with the week with a loss of 32 points.

 

Both Sensex and Nifty have formed a small spinning top formation on the weekly charts, which is a neutral formation. The long upper shadow represents selling pressure at higher levels. The above formations can be negated only if both Sensex and Nifty manage a close above their recent respective highs (Sensex – 17919 and Nifty – 5366). Until then, the bearish formation will continue to exert its pressure on the market.

 

Momentum oscillator like the MACD has just given a Sell signal. The ROC is nearing the centerline and is on the verge of giving a Sell signal. The RSI though continues to remain around 52. The Stochastic Oscillator continues in its Sell mode. The ADX has reduced to 18 suggesting that uptrend is losing steam. The Direction Indicators are still in Buy mode but the +DI in now moving down closer to the –DI which is not a very positive sign.

 

The market has seen strong rise from 15960 to 17919 for the Sensex and 4786 to 5366 for the Nifty. Both the indices are now correcting their rise and the correction levels for the Sensex falls at 17171-16940-16708 and those for the Nifty are 5144-5076-5008.

 

The Sensex zone 17150-17250 acted as strong resistance before the bullish breakout occurred. Now this resistance zone will act as support, when the Sensex comes down during retracement. Besides this, the 50dma (17143) and 38.2% retracement of the recent rise from 15960 (17171) also falls within this support band. Hence there is a confluence of supports existing between 17150-17250, which make this support zone critical. Similarly Nifty zone between 5140-5165 acted as strong resistance before the breakout occurred. Now this zone will act as support during correction. Besides, the 50dma (5142) and 38.2% retracement of the recent rise from 4786 (5144) also falls within this support zone. Hence expect strong support between 5140-5165.

 

The long term trend of the market remains intact as long as the Sensex and Nifty continue to trade above their 200dmas (Sensex 16987 and Nifty 5076). Please note that the 200dma is almost coinciding with the 50% retracement level of the recent rise i.e. Sensex 16940 and Nifty 5076. Hence expect strong rebound from these levels in case of a severe correction.

 

If we look at broader picture, then we are still correcting the fall of the Sensex from 21206 to 7697 and Nifty from 6357 to 2252. Since both the indices have managed a close above their 61.8% retracement levels, the next possible target will be Sensex 18315 and Nifty 5478 which are the 78.6% retracement levels of the entire previous fall.

 

Since last October, the market is moving in a rising channel and the channel top has provided strong resistance to the market and that supply trendline top falls at Sensex 18310 and Nifty 5490. Both the rising channel trendline top and the 78.6% retracement levels are almost coinciding and hence Sensex and Nifty are likely to find difficulty in crossing over 18310-18315 and 5478-5490 respectively.

 

The O.I.PCR is quite normal at 1.41. 5200 PE are seeing reduction in open interest as the Put writers have started losing confidence. The Put writing has shifted to 5000 strike. Very high open interest has been added for 5300 CE suggesting that this level might prove to be difficult to breach for the market in the near term. Besides strong call writing is happening at the strike of 5500.

 

Sensex has strong Trendline resistance at 17893. Trendline support for the Sensex will come in at 17147. Nifty has strong rising Trendline resistance at 5360. Trendline support for the Nifty will come in at 5104.

 

For the week ahead, Sensex will find Support at 17337-17150-16942 and will find Resistance at 17629-17845-18047.

 

For the week ahead, Nifty will find Support at 5187-5142-5097 and will find Resistance at 5288-5329-5368.

 
INDEX LEVELS:
  
 S3S2S1CLOSER1R2R3
Nifty5097514251875237528853295368
Sensex16942171501733717460176291784518047
  
LAST WEEKS RECOMMENDATIONS:  It was bonanza time for our readers as all our recommendations achieved their targets with ease. The stars for the past week were HPCL, BPCL and MRPL.

 
STOCKReco. PriceTgtReachedLot SizeProfit
Buy ONGC126313311347250Rs.21,000
Buy HPCL4024494841000Rs.82,000
Buy BPCL620672678500Rs.29,000
Buy MRPL7381844000Rs.44,000
Buy GTLInfra4548498000Rs.32,000
    TotalRs.2,08,000
      
THIS WEEKS RECOMMENDATIONS:
  
STOCKCMPSLTgt-1Tgt-2
Buy Chenn.Petro262258271281
Buy ChambalFert67667073
Buy RPower175172181186
Buy Suzlon58576164
Buy Purvankara111108117123
   
WATCH OUT FOR:

  

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