Archives : BEARISH ENGULFING - 07/01/2011.
BEARISH ENGULFING 07/01/2011.
 
SHORT AND MEDIUM TERM TREND TURNS NEGATIVE. 

All the hopes that the market had of testing the previous top in the near future was ruined when this week the market registered a lower top and went down. The question now on every traders mind is not about the testing of previous top but whether market will test its previous bottom. If the previous bottom is breached i.e. Nifty 5690, then the Nifty would have confirmed a lower top lower bottom formation. Both the indices have closed below their short and medium term averages and hence both short and medium term trend has turned down. In fact this is the way a Broadening pattern reacts while reaching out for its target. Lot of stoplosses get triggered while this pattern plays out and making money becomes difficult in this pattern formation.



BEARISH ENGULFING 07/01/2011.
 
SHORT AND MEDIUM TERM TREND TURNS NEGATIVE. 

All the hopes that the market had of testing the previous top in the near future was ruined when this week the market registered a lower top and went down. The question now on every traders mind is not about the testing of previous top but whether market will test its previous bottom. If the previous bottom is breached i.e. Nifty 5690, then the Nifty would have confirmed a lower top lower bottom formation. Both the indices have closed below their short and medium term averages and hence both short and medium term trend has turned down. In fact this is the way a Broadening pattern reacts while reaching out for its target. Lot of stoplosses get triggered while this pattern plays out and making money becomes difficult in this pattern formation.

 

RBI MAY ACT; HAS THE MARKET WORRIED.

 

On Friday, the Sensex tanked by more than 500 points on concerns regarding rising food inflation. The protests are getting louder and now the government is being cornered by the opposition on the inflation front. The market crashed on Friday as the market sensed that the RBI may act and raise interest rates in order to tame inflation. Also the talk about removal of stimulus package added to the panic.

 
TECHNICALLY SPEAKING. 

The Sensex opened the week at 20621, made a high of 20664, a low of 19629 and closed the week at 19691. The Sensex lost 818 points on a weekly basis. Similarly Nifty opened the week at 6177, made a high of 6181, a low of 5883 and closed the week at 5904. The Nifty too closed with a loss of 230 points on a weekly basis.

 

Both the indices have formed a big body Black candle on the weekly charts. The last two weeks formation forms a Bearish Engulfing candlestick pattern. This is a Bearish Reversal pattern. On the daily charts too, the indices have formed a big body Black candle suggesting further weakening of the trend.

The market has closed below the 50dma (Sensex – 20045 and Nifty – 6017) and 20dma (Sensex – 20049 and Nifty 6005) and as a result the medium term as well as the short term trend has turned bearish. The long term trend is still up as both the indices are above the 200dma (Sensex – 18636 and Nifty – 5594).

 

Both the indices are correcting their recent rise i.e. from 18954 to 20664 for the Sensex and 5690 to 6181 for the Nifty. On Friday both the indices have taken support at the 61.8% retracement of the above mentioned fall i.e. 19607 for the Sensex and 5878 for the Nifty. If the fall continues below the above mentioned levels then we will have to look at a larger correction i.e. from 15960 to 21108 for the Sensex and 4786 to 6338 for the Nifty. The correction levels for the Sensex then will be 19141-18534-17926 and for the Nifty the retracement levels will fall at 5745-5562-5379.

 

Both the indices have formed a higher bottom at Sensex 18954 and Nifty 5690. This bottom was tested when the indices went lower (Sensex 19074 and Nifty 5721) without breaching it. Hence in the short term Sensex 18954 and Nifty 5690 assumes lot of significance and the trend will remain positive as long as the above mentioned levels survive. The long term trend will remain intact as long as Sensex 17819 and Nifty 5348 remains intact.

 

ROC has turned negative and thereby signaled a Sell and the MACD too gave a Sell signal but it still continues to be in the positive territory. The RSI too has moved lower to 41 and has signaled a Sell. OBV has too given a Sell along with the Money Flow Index which has just moved below the centerline. The Stochastic Oscillator is oversold as %K is in oversold zone. The Directional Indicators had given a Sell signal on Thursday as +DI has crossed –DI from above below.

 

The O.I. PCR has dropped drastically this week and is at 0.89 as the Put writers were butchered mercilessly. The drastic fall in the market has added to the confidence of the Call writers which can be seen with the high increase in open interest for 6200 and 6100 Calls, besides 6000 Call which saw highest build up in open interest on Friday. There is strong buildup for the 5800 Put which may act as a support.

 

The Trendline Support for the Sensex is at 19520-19216.

 

The Trendline Support for the Nifty is at 5857-5682.

 

For the week ahead, Sensex will find Support at 19342-19014-18823 and will find Resistance at 19864-20084-20267.

 

For the week ahead, Nifty will find Support at 5824-5721-5625 and will find Resistance at 5966-6029-6092.

 
INDEX LEVELS:
 
 S3S2S1CLOSER1R2R3
Nifty5625572158245904596660296092
Sensex18823190141934219691198642008420267
  
LAST WEEKS RECOMMENDATIONS: Most of the stoplosses got triggered except for SKumars.
 
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Buy Skumars868989
Buy HDiL194200198
Buy SyndicateBnk128132130
  
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