Archives : LAST ENGULFING BOTTOM - 16/12/2011.

LAST ENGULFING BOTTOM   16/12/2011. 

RBI : TOO LITTLE; TOO LATE.

The IIP fell 5.1% in October which was due to the sharpest ever decline in Capital Goods sector. Hence it was expected that the RBI will have to rectify its policy stance and bring the Industrial Production back on track. Given the deteriorating domestic and global growth outlook, the RBI’s policy of Rate tightening seemed to be over and a cut in the CRR was expected. But to the market’s dismay, it did nothing and maintained status quo on the interest rate front. During the global crisis in 2008, RBI was ahead of the curve and managed the economy well, but this time it is well behind the curve and is doing precious little to improve the economy. RBI has been myopic in its approach and has focused all its attention to rein in the inflation and in the bargain growth has suffered.

 


LAST ENGULFING BOTTOM   16/12/2011. 

RBI : TOO LITTLE; TOO LATE.

The IIP fell 5.1% in October which was due to the sharpest ever decline in Capital Goods sector. Hence it was expected that the RBI will have to rectify its policy stance and bring the Industrial Production back on track. Given the deteriorating domestic and global growth outlook, the RBI’s policy of Rate tightening seemed to be over and a cut in the CRR was expected. But to the market’s dismay, it did nothing and maintained status quo on the interest rate front. During the global crisis in 2008, RBI was ahead of the curve and managed the economy well, but this time it is well behind the curve and is doing precious little to improve the economy. RBI has been myopic in its approach and has focused all its attention to rein in the inflation and in the bargain growth has suffered.

TECHNICALLY SPEAKING.

The Sensex opened the week at 16354, made a high of 16360, a low of 15425 and closed the week at 15491. The Sensex lost 722 points on a weekly basis. Similarly Nifty opened the week at 4906, made a high of 4910, a low of 4628 and closed the week at 4651. The Nifty too closed with a weekly loss of 215 points. 

Both the indices have formed a Bearish Black body Marubuzo on the weekly charts, which indicates a further continuation of bearishness. Whereas on the daily charts there is a big black body formed on Friday. But if we consider last two day candlestick pattern, then it has formed Last Engulfing Bottom. This pattern when appears during a decline, has a potential of giving a Bullish Reversal signal, if the prices on Monday can close above the black candle’s close. The bearishness can continue if there is a negative close on Monday.

Short term, Medium term and Long term Trends continue to be down. Both Sensex and Nifty are below their short term average of 20dma (Sensex – 16136 and Nifty – 4839), medium term average of 50dma (Sensex – 16634 and Nifty – 4997) and long term average of 200dma (Sensex – 17706 and Nifty – 5316). As a result the Short term, Medium term and Long term trend continue to be bearish. Besides this, both the indices have also closed below their 200 Weeks moving average (Sensex – 15893 and Nifty – 4771).

For more than a year, both the indices have been moving lower in a Falling Channel. The lower end of the Falling Channel, which should act as support, falls at Sensex 14850 and Nifty 4446 and the top end, which will provide resistance, is at Sensex 17675 and Nifty 5352. On a longer term timeframe the Bearish Head & Shoulders and Bearish Descending Triangle on the weekly charts still stand, and so do their targets. The target for the Bearish Head and Shoulders pattern on the weekly charts stands at Sensex 14651-13928 and Nifty 4357-4143. This target holds true as long as the Nifty stays below 5740.

The bearish closing on the weekly charts has completed another huge Bearish Head & Shoulders pattern on the weekly charts. This pattern is a derived pattern which is formed after the market is on the verge of achieving the targets of primary distribution pattern of Bearish Head & Shoulders and Bearish Descending Triangle as discussed in the above paragraph. In order to play safe, we would like to have one more week of closing below the neckline of Sensex – 15790 and Nifty 4721. Interestingly the targets for this bearish pattern are quite scary i.e. Sensex 10387 and Nifty 3080.

The market is correcting the entire rise from 7697 to 21108 for the Sensex and 2252 to 6338 for the Nifty. The market has already breached and is below the 38.2% of the above mentioned rise and hence it is likely to move towards the next Fibonacci Retracement levels of 50% and 61.8% levels of the entire fall for the Sensex and Nifty. Those levels are 14402-12820 for the Sensex and 4295-3813 for the Nifty.

The Golden Ratio Target of the current rise of Sensex from 15765 to 17908 and Nifty from 4720 to 5399, falls at Sensex 14440 and Nifty 4300. This level coincides with the 50% Retracement level of the entire rise (Sensex – 14402 and Nifty – 4295) and hence we have a confluence zone between Sensex 14440-14402 and Nifty 4300-4295. This zone will act as strong support for both the indices.

Majority of oscillators are bearish. MACD continues with its Sell signal and is in negative territory. ROC has given a fresh Sell signal by turning negative. RSI continues in its Sell mode as it is below the centerline at 34. Stochastic Oscillator too is in Sell mode as %K is below %D. Directional Indicators too are in Sell mode as +DI is below –DI. ADX has improved and is at 22. It suggests the downtrend is getting stronger. MFI too has given a fresh Sell signal as it moved below the centerline. It is at 34 suggesting money has flown out of the market. OBV has moved below the previous low and hence continues with its lower top, lower bottom formation. Thus OBV too continues with its Sell mode.

Nifty OI PCR has fallen dramatically and is at 0.89, but it is yet to reach oversold limits. Highest Open Interest continues at 4700 Put, despite Nifty closing below that. Also 4500 has added good amount of Open Interest. Highest Call writing is seen at 5100 strike. Hence one can expect Nifty to find some support at 4500. On the higher side, resistance will be at 5100. 

Trendline Resistance for the Sensex is at 16710. Trendline Support for the Sensex is at 15350.

Trendline Resistance for the Nifty is at 4989. Trendline Support for the Nifty falls at 4596.

For the week ahead, Sensex will find Support at 15171-14850-14519 and will find Resistance at 15801-16133-16488.

For the week ahead, Nifty will find Support at 4538-4446-4353 and will find Resistance at 4758-4866-4985.

INDEX LEVELS:  

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

4353

4446

4538

4651

4758

4866

4985

Sensex

14519

14850

15171

15491

15801

16133

16488

LAST WEEKS RECOMMENDATIONS:  

PAIR NO.

STOCK

Rec.price

Tgt

 Reached 

Lot size

Profit

1

Buy

ABNuv

917

933

928

500

Rs. 5,500

Sell

Siemen

690

652

642

250

Rs. 12,000

2

Buy

BPCL

554

565

556

500

Rs. 1,000

Sell

IGL

370

351

351

1000

Rs. 19,000

3

Buy

OiL

1190

1208

1193

250

Rs. 750

Sell

Escorts

77

69

65

2000

Rs. 24,000

Profit

Rs.62,250

THIS WEEKS RECOMMENDATIONS: 

STOCK

CMP

SL

Tgt-1

Tgt-2

Sell LiCHsg

215

219

209

202

Sell GMDC

165

168

160

154

Sell HeroMot

1925

1963

1877

1827

Sell BoB

704

713

688

671

Sell BomDyeing

350

360

337

323

WATCH OUT FOR:

.

LIC Hsg

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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