Archives : BEARISH BELT HOLD - 01/07/2011.

BEARISH BELT HOLD – 01/07/2011.  

PATTERN FORMATION - A DYNAMIC PROCESS.

Pattern formation is a dynamic process and what better time to understand this now as the indices continue their search for further direction. It is almost like the patterns are having a fight amongst themselves. There are three pattern formations which need to be understood clearly.

 


BEARISH BELT HOLD – 01/07/2011.  

PATTERN FORMATION - A DYNAMIC PROCESS.

.

Pattern formation is a dynamic process and what better time to understand this now as the indices continue their search for further direction. It is almost like the patterns are having a fight amongst themselves. There are three pattern formations which need to be understood clearly.

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  1. The first pattern which is now a casualty, being the Bearish Head & Shoulders formation on the daily charts. As we had mentioned last week the daily H&S would fail if the Sensex closed above 18724 and Nifty above 5605. This pattern has failed as both the indices managed a close above those levels.

  2. The second pattern is the Bearish H&S formation on the weekly charts, which could not get completed because of its failure to close below the neckline on the weekly basis. This pattern will get completed when indices close below the neckline i.e. Sensex 18000 and Nifty 5384. This pattern can fail if the indices close above the right shoulder i.e. Sensex 19811 and Nifty 5944.

  3. The third pattern which finds mention is the Descending Triangle formation. This pattern is under consideration because the previous bottom of Sensex and Nifty got tested without violating that bottom. The trendline joining these bottoms is almost horizontal. This pattern will get completed and generate a bullish breakout if the Sensex closes above 19018 and Nifty above 5720. A bearish breakout will be in place if the Sensex closes below 17295 and Nifty below 5177.

TECHNICALLY SPEAKING. 

The Sensex opened the week at 18132, made a high of 19031, a low of 18132 and closed the week at 18762. The Sensex gained a whopping 522 points on a weekly basis. Similarly Nifty opened the week at 5441, made a high of 5705, a low of 5434 and closed the week at 5627. The Nifty too closed with a strong weekly gain of 156 points.

In the current rally both Sensex and Nifty have left behind two Rising gaps. The first gap between Sensex 17754 - 17804 and Nifty 5330 - 5343 marked the beginning of the rally, and hence it was a Breakaway gap. The second gap between Sensex 18527 – 18552 and Nifty 5558-5566 can be termed as a Measuring gap. According to this Measuring gap, the target for the current rally falls at Sensex 19765 and Nifty 5929.

After a bullish reversal pattern called Bullish Harami pattern got completed last week on the weekly charts, this week saw a show of strength as both the indices registered an Opening White Body Marubuzo. On the daily charts there is a minor short term bearish reversal seen due to the formation of Bearish Belt Hold formation on the Nifty. Bearish Belt Hold is a formation of Bearish Opening Black body Marubuzo on the daily charts after a gap up opening. On the Sensex, there is a big black body formation but it has a slight upper shadow and hence cannot be passed of as a Bearish Belt Hold. The formation however is bearish and will have similar implications as that in the Nifty. One must note that the formation cannot be termed as Dark Cloud Cover because the previous days body is not as big as the second days body. Candlestick analysis suggests a short term bearish trend reversal on the daily charts but the higher time frame i.e. the weekly formations suggests continuation of the bullish trend.

After a strong upward move, the candle stick pattern suggests a short term bearish reversal and hence one needs to consider the correction of the immediate rise from Sensex 17314 to 19031 and Nifty 5195 to 5705. Correction levels will be 18375-18172-17970 for the Sensex and 5510-5450-5390 for the Nifty.

The short term trend was already bullish as the market was well above the 20dma (Sensex – 18216 and Nifty – 5468) and this week it managed a close above the 50dma (Sensex – 18399 and Nifty – 5519) and as a result the medium term trend turned bullish. But the market is still below the long term average of 200dma (Sensex – 19154 and Nifty – 5748). As a result, the short term trend and the medium term trends are bullish but the long term trend continues to remain down.

On the daily charts the Bearish H&S failed when the indices closed above the top of right shoulder last week. On the weekly charts the Bearish H&S will get completed when the neckline which is actually a support trendline (Sensex 18000 and Nifty 5384) is breached on a weekly closing basis. Till then the neckline will continue to provide strong support to the indices.

If we consider the entire fall from 21108 to 17295 for the Sensex and 6338 to 5177 for the Nifty then the correction levels will be 18751-19202-19651 for the Sensex and 5621-5758-5895 for the Nifty. There is a strong resistance zone formed by the convergence of Trendline resistance, 200dma and 50% retracement of the entire fall. Thus Sensex 19018-19202 and Nifty 5720-5758 forms a strong Resistance Zone. This zone defines the long term outlook for the market and a close above this zone will confirm a trend reversal in the long term.

Majority of the oscillators have given a Buy signal. MACD and ROC are both positive and continue with their Buy mode. RSI is also in Buy mode and is at 61. Money Flow (66) has given a Buy, signaling that money is flowing in the market. OBV too has crossed a previous top and has signaled a Buy. Stochastic oscillator has given a Sell signal in the overbought territory as %K has cut %D from above. The Directional Indicators are in Buy mode and are moving away from each other suggesting bullishness. 

Nifty O.I. PCR is at 1.30. Highest Open Interest build-up in the July series is seen at 5400 Put and 5800 Call. It suggests a range for the Nifty between 5400 on the lower side to 5800 on the higher side.

 

The Trendline Resistance for the Sensex is at 19018. The Trendline Support is at 17936.

The Trendline Resistance for the Nifty is at 5720. The Trendline Support is at 5373.

For the week ahead, Sensex will find Support at 18452-18120-17786 and will find Resistance at 19074-19342-19633.

For the week ahead, Nifty will find Support at 5539-5443-5348 and will find Resistance at 5721-5824-5926.

INDEX LEVELS: 

 S3S2S1CLOSER1R2R3
Nifty5348544355395627572158245926
Sensex17786181201845218762190741934219633

LAST WEEKS RECOMMENDATIONS:  

STOCKReco. PriceTgtReachedLot SizeProfit
Buy IOC336358358500Rs.11,000
Buy NTPC1821871891000Rs.7,000
Buy IndusInd2662742791000Rs.13,000
Buy Adani691729731500Rs.20,000
Buy Kotak447471484500Rs.18,500
    TotalRs.69,500

THIS WEEKS RECOMMENDATIONS: 

STOCKCMPSLTgt-1Tgt-2
Buy CentTex 365357378393
Buy ReLMed130127135141
Buy OFSS2310228223532398
Buy PFC191188198205
Buy 3iInfotech47465053

WATCH OUT FOR:

Century Tex

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