Archives : NIFTY HEADED TOWARDS 7454 - 09/05/2014.

NIFTY HEADED TOWARDS 7454 –  09/05/2014.

TYPICAL BULL MARKET.

Market recovered what it had lost in the last nine trading sessions in a single day on Friday which is a sign of a strong Bull market. As a result the Sensex, Nifty and Bank Nifty managed to close at life high levels. Market is pricing in a strong NDA government which is clearly visible by the way Nifty went up by 200 points on Friday. Also the Volatility Index India VIX, increased by more than 15% in the last week to close at record high of last three years. Pattern formation suggests that the VIX is now headed towards the half century mark which was recorded during the period before last election in the year 2009. As the Volatility increases, market will experience wild moves in both the direction and in such cases, it becomes imperative for traders to hedge their positions or else volatility can easily wipe away their profits.

 


NIFTY HEADED TOWARDS 7454 –  09/05/2014.

TYPICAL BULL MARKET.

Market recovered what it had lost in the last nine trading sessions in a single day on Friday which is a sign of a strong Bull market. As a result the Sensex, Nifty and Bank Nifty managed to close at life high levels. Market is pricing in a strong NDA government which is clearly visible by the way Nifty went up by 200 points on Friday. Also the Volatility Index India VIX, increased by more than 15% in the last week to close at record high of last three years. Pattern formation suggests that the VIX is now headed towards the half century mark which was recorded during the period before last election in the year 2009. As the Volatility increases, market will experience wild moves in both the direction and in such cases, it becomes imperative for traders to hedge their positions or else volatility can easily wipe away their profits.

TECHNICALLY SPEAKING. 

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Sensex opened the week at 22412, made a high of 23048, low of 22277 and closed the week at 22994. Thus it closed the week with a strong gain of 591 points. At the same time the Nifty opened the week at 6681, made a high of 6871, low of 6638 and closed the week at 6858. Thus the Nifty closed the week with a gain of 164 points.

Friday saw both the indices forming a big Opening White body Marubuzo on the daily charts such that the market not only recovered all the losses of the last nine trading sessions but even managed to close at record highs. On weekly charts, both the indices have formed a Bullish Engulfing, but it has little significance as it has not formed in a down trend. Thus both daily as well as weekly charts suggest strong bullish bias in the short term.

At the cost of sounding repetitive, the market has once again validated the strong Support zone between Sensex 22256-22197 and Nifty 6665-6650 by taking support there. Hence the Short term trend will reverse only if this Support zone is breached.

Both the indices completed a Bullish Flag pattern when Sensex closed above 22023 and Nifty 6562. The pattern has a potential target of atleast Sensex 23126 and Nifty 6912 and on the higher side Sensex 24083 and Nifty 7191. These targets are likely to be achieved as long as Sensex remains above 21573 and Nifty above 6432.

The market has left behind a Bullish Upward Gap (Sensex 21539-21525 and Nifty 6413-6403). This Bullish Gap is acting as a strong support which got validated when the Sensex reversed from a low of 21573 and Nifty from 6432. Also the Bullish Gap mentioned above is also a Measuring Gap and as per Gap theory the target falls at Sensex 23101 and Nifty 6886.

Pattern formation is a dynamic process the indices have witnessed completion of Rising Wedge formation in weekly line chart. Rising Wedge has a natural tendency to give a bearish breakout but here it has given a bullish breakout and hence one can expect a strong upmove towards a potential target of Sensex 24429 and Nifty 7326.

When the indices closed above the previous top, both the indices completed a Bullish pattern in the intermediate term and the targets as per that falls at Sensex 23003 and Nifty 6897.

Thus as per Gap theory and Pattern analysis, Sensex seems headed towards a target of 23003-23126 and Nifty 6886-6912 in the intermediate term.

When the market overcame the previous top and made fresh lifetime highs, it marked the end of six year consolidation. On the weekly charts both Sensex and Nifty have completed a Bullish Saucer formation and the targets as per that will fall at Sensex 24799 and Nifty 7454 on the lower side and Sensex 27081 and Nifty 8145 on the higher side. The targets are likely to be achieved over a period of next 20 months.

Current rally has started from a low of Sensex 19963 and Nifty 5933. Hence it becomes imperative that this support level holds so that the indices can move towards higher targets. Thus a breach of Sensex 19963 and Nifty 5933 will derail the current bullish rally.

Both Sensex and Nifty have closed above the short term average of 20dma (Sensex – 22570 and Nifty – 6748), and also they continue to remain above the medium term average of 50dma (Sensex – 22077 and Nifty – 6591) and the long term average of 200dma (Sensex – 20692 and Nifty – 6152). Thus the trend in the short term has turned bullish whereas the trend in the medium term and the long term timeframe continues to remain bullish.

MACD is in Sell mode even though it is in positive zone. ROC has turned positive and hence gives a Buy signal. RSI (65) has now gone above the equilibrium line, suggesting bullish momentum. MFI (44) is still below the centerline suggesting negative money flow for the market. Stochastic Oscillator %K (36) is in Buy mode as it has gone above %D. ADX (26) suggesting that the uptrend is still intact but had undergone a consolidation. The Directional Indicators have given a fresh Buy signal as +DI has gone above -DI. OBV too has started moving higher but still in sell mode. Thus Oscillators are suggesting a mixed bias in the near term.

Open Interest Put Call Ratio O.I.PCR for the May series is at a reduced level of 0.92. Highest Open interest build up is seen at 7000 Call and 6400 Put. This suggests that the market expects a trading range with support coming in at 6400 levels and resistance around 7000 levels. Interestingly Friday saw strong Call buying at the strikes of 7200 and 7400. As the Implied Volatility is increasing and is around 42, Option players are creating Strangles between the strikes of 6800 and 7200 which is costing as high as 380. Warning to players in the Options market that one should expect a Volatility Crunch on 16th May when the results of the elections are out.

The Trendline Support for the Sensex is at 22319.

The Trendline Support for the Nifty is at 6649.

For the week ahead, Sensex will find Support at 22620-22277-22040 and will find Resistance at 23254-23601-23942.

For the week ahead, Nifty will find Support at 6743-6650-6562 and will find Resistance at 6941-7045-7136.

INDEX LEVELS:

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

6562

6650

6743

6858

6941

7045

7136

Sensex

22040

22277

22620

22994

23254

23601

23942

THIS WEEKS RECOMMENDATIONS:

STOCK

CMP

SL

Tgt-1

Tgt-2

Buy M&M

1102

1081

1137

1173

Buy IOC

286

280

297

309

Buy Bhel

194

189

202

211

Buy PFC

201

197

209

218

Buy OBC

265

259

275

286

WATCH OUT FOR:

PFC

ESSAR OIL

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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