Archives : SMART RECOVERY, BUT WILL IT SUSTAIN? - 03/12/2010.
SMART RECOVERY, BUT WILL IT SUSTAIN? - 03/12/2010.
 
PULL-BACK ON LOWER VOLUMES. 

Last week it was clearly mentioned that even though the indices had formed a Bearish Three Black Crows on the weekly charts, the daily charts were extremely oversold and as a result a pull-back was on the cards. There was no surprise when the market started to pull-back but what surprised everyone was the magnitude of the bounce back with decrease in volatility. But one important factor, which was the volume, was not in sync with the pull-back. The pull-back happened on lower volumes.



SMART RECOVERY, BUT WILL IT SUSTAIN? - 03/12/2010.
 
PULL-BACK ON LOWER VOLUMES. 

Last week it was clearly mentioned that even though the indices had formed a Bearish Three Black Crows on the weekly charts, the daily charts were extremely oversold and as a result a pull-back was on the cards. There was no surprise when the market started to pull-back but what surprised everyone was the magnitude of the bounce back with decrease in volatility. But one important factor, which was the volume, was not in sync with the pull-back. The pull-back happened on lower volumes.

 
IS THIS A PULL-BACK OR RESUMPTION OF UPTREND? 

So now the most important question, whether this is merely a pull-back rally or the start of a fresh uptrend. The answer is currently we are in a pull-back rally and this rally will be termed as a resumption of uptrend only if the indices are able to close above the 61.8% retracement of the current fall and that level for the Sensex is 20285 and Nifty 6090. Till then this rally will remain a pull-back rally.

 
CURRENT STATUS OF THE RALLY. 

Current pull-back started from Sensex 18954 and Nifty 5690 and currently it has almost touched the 50% retracement mark without actually closing above it. Now the market is facing resistances in the form of 50dma (Sensex 20160 and Nifty 6065) and 61.8% retracement level (Sensex 20285 and Nifty 6090). Thus the Sensex will face a resistance zone around 20160-20285 and Nifty 6065-6090 and only a close above this resistance zone will signal a resumption of uptrend. In case the market fails to close above this resistance zone, then the downside correction levels are Sensex 19652-19519-19386 and Nifty 5899-5860-5819. If the Sensex closes below 19386 and Nifty below 5819, then one can expect atleast a retest of the recent lows i.e. Sensex 18954 and Nifty 5690 and possibly much lower levels.

 
TECHNICALLY SPEAKING. 

The Sensex opened the week at 19230, made a high of 20084, a low of 19167 and closed the week at 19966. The Sensex gained 830 points on a weekly basis. Similarly Nifty opened the week at 5789, made a high of 6029, a low of 5754 and closed the week at 5992. The Nifty too closed with a strong gain of 241 points on a weekly basis.

 

After the completion of Identical Three Black Crows, oscillators on the daily charts were oversold and hence a pull-back was expected and it happened and as a result a big White Body candle was formed on the weekly charts. On the daily charts on Thursday a small black body was formed with a gap, which can be termed as a star. This is a neutral formation which indicates uncertainty in the market place. Next day also saw another small black body being formed, pushing back the decider on Monday’s candle formation. If a big black body is formed on Monday, then it will indicate a reversal of the uptrend. A white body will indicate a continuation of the uptrend.

 

The market is currently testing the 20dma (Sensex – 20020 and Nifty – 6022) and the short term trend will turn up only if the indices manage a close above the 20dma levels. The market is trading below the 50dma (Sensex – 20160 and Nifty – 6065) and as a result both the medium term trend continues to be down. At the same time both the indices are still above their 200dma (Sensex – 18277 and Nifty – 5486) and hence the long term trend still continues to remain positive.

 

Both the indices have recently formed a bottom at Sensex 18954 and Nifty 5690. If the indices manage to breach this recent bottom, then the down trend in the short term will resume. The long term trend will remain intact as long as Sensex 17819 and Nifty 5348 remains intact.

 

In the current upmove an upward gap was left behind on the Sensex i.e. between 18845-18823 and now this gap is likely to act as a support. One can expect some support coming in at this level.

 

Both the indices are in the process of correcting the fall i.e. from 21108 to 18954 for the Sensex and 6338 to 5690 for the Nifty. The correction levels for the Sensex are at 19777-20031-20285 and for the Nifty 5938-6014-6090. A close above the 61.8% retracement level (Sensex 20285 and Nifty 6090) will signal a resumption of the uptrend and a possible move towards the testing of previous high (Sensex 21108 and Nifty 6338). In case Sensex falls and closes below 19386 and Nifty below 5819, then the market will resume the correction of the rise of the Sensex from 15960 to 21108 and Nifty 4786 to 6338. The correction levels in that case are placed at 19141-18534-17927 for the Sensex and 5745-5562-5379 for the Nifty.

 

Both the indices have formed a Bearish Broadening Top formation and the target for that pattern falls at Sensex 18427 and Nifty 5512.

 

MACD has just given a Buy signal despite being in the negative territory. RSI too has signaled a Buy by moving above 50 and so has the ROC which has just turned positive. Stochastic oscillator is in overbought territory. The Directional Indicators are in Sell mode as -DI continues to be above +DI. But interestingly both the Directional Indicators have started converging towards each other which can be minor positive sign as the +DI is gaining strength and –DI is losing steam. OBV has moved higher but not yet signaled a Buy. MFI has moved higher in sync with the price movement after being in the oversold territory suggesting bottom fishing at lower levels.

 

The OI PCR has improved and is at 1.30. Highest Open Interest build up is seen at 6000 Call and 5800 Put for the Dec series. Put writing at 5800 levels suggests strong support at that level and 6000 levels will provide strong resistance.

 

The Trendline Support for the Sensex falls at 19766-19077 and for the Nifty 5941-5724.

 

For the week ahead, Sensex will find Support at 19768-19504-19252 and will find Resistance at 20167-20383-20609.

 

For the week ahead, Nifty will find Support at 5932-5863-5790 and will find Resistance at 6066-6138-6199.

  
INDEX LEVELS:
 
 S3S2S1CLOSER1R2R3
Nifty5790586359325992606661386199
Sensex19252195041976819966201672038320609
  
LAST WEEKS RECOMMENDATIONS: As the market started the pull-back most of the stop losses got triggered.
 
STOCKReco. PriceTgtReached
Sell Sesa Goa299284285
Sell BemL990968957
Sell HindZinc110010711092
Sell HindOil207195202
Sell PatelEngg320305310
   
THIS WEEKS RECOMMENDATIONS:
  
STOCKCMPSLTgt-1Tgt-2
Sell LiCHsg103510511009981
Sell DLF306313295282
Sell AllahbdBnk243247236228
Sell Escorts188193179168
Sell JsWSteel1124113910931060
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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