Archives : RISING GAP TO THE RESCUE - 20/06/2014.

RISING GAP TO THE RESCUE –  20/06/2014. 

CORRECTION ELUDES THE MARKET.

The market action for the entire week can be summed up by two words ‘Range bound’. That is precisely the way the market moved for the entire of the last week. Price Correction was the need of the hour but somehow that continues to elude the market. In bargain, the market has taken support at the strong confluence Support zone of Nifty 7497-7477 (which is a confluence of first Rising Gap and 38.2% Retracement of the immediate rise) for the entire of the last week, without breaching it. This Support zone is the key to the future market movement, i.e. the much expected Price Correction will start only if this Support zone gets breached. In that case the minimum Correction levels are placed at Nifty 7409-7340.

 

 


RISING GAP TO THE RESCUE –  20/06/2014. 

CORRECTION ELUDES THE MARKET.

The market action for the entire week can be summed up by two words ‘Range bound’. That is precisely the way the market moved for the entire of the last week. Price Correction was the need of the hour but somehow that continues to elude the market. In bargain, the market has taken support at the strong confluence Support zone of Nifty 7497-7477 (which is a confluence of first Rising Gap and 38.2% Retracement of the immediate rise) for the entire of the last week, without breaching it. This Support zone is the key to the future market movement, i.e. the much expected Price Correction will start only if this Support zone gets breached. In that case the minimum Correction levels are placed at Nifty 7409-7340.

TECHNICALLY SPEAKING.

Sensex opened the week at 25239, made a high of 25609, low of 25056 and closed the week at 25105. Thus it closed the week with a loss of 123 points. At the same time the Nifty opened the week at 7534, made a high of 7663, low of 7487 and closed the week at 7511. Thus the Nifty closed the week with a loss of 31 points.

On Friday, both Sensex and Nifty formed a small black body candle in sideways consolidation phase. On the weekly chart both the indices have formed a small black body candle with long upper shadow. The long upper shadow is because of Selling witnessed at higher levels. On the weekly charts last three weeks have formed a pattern which is on the lines of Mat Hold but the key remains the formations in the coming two weeks. Thus daily as well as weekly formations point towards consolidation in the near term.

In the short term timeframe, we consider a Correction of the immediate rise from Sensex 24163 to 25735 and Nifty 7118 to 7700 and the corresponding Correction levels are placed at 25135-24949-24764 for the Sensex and 7477-7409-7340 for the Nifty.

Currently the market is experiencing Time wise Correction after reaching the daily as well as weekly Flag pattern target which was at 7705. But while moving higher the market has left behind two Bullish Rising Gaps out of which the first between Sensex 25129-25044 and Nifty 7497-7484 is already acting as a strong Support by supporting the market for the entire last week. In fact this gap aided by the 38.2% Retracement of the immediate Correction levels form a strong confluence Support zone between Sensex 25135-25044 and Nifty 7497-7477. Interestingly the short term average of 20dma (Sensex 25037 and Nifty 7480) also falls within the Support zone and hence if this Support zone gets breached then the Short Term Trend will turn negative.

If the above mentioned Support zone gets breached, then one can expect the Correction to intensify; and the indices to move lower towards the next Support zone which is the second Bullish Rising Gap between Sensex 23729-23572 and Nifty 7067-7020. This is a stronger Support zone as it coincides with 61.8% Retracement level (i.e. Sensex 23598 and Nifty 7044) of the Sensex rise from 22277 and Nifty from 6638. Current intermediate rally will derail if this Rising Gap gets breached.

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 27081 and Nifty 8145 which are likely to be achieved within a period of next 20 months.

Both Sensex and Nifty are above the short term average of 20dma (Sensex – 25037 and Nifty – 7480), the medium term average of 50dma (Sensex – 23870 and Nifty – 7131) and the long term average of 200dma (Sensex – 21526 and Nifty – 6410). Thus the trend in the short term, medium term and the long term timeframe continues to remain bullish.

MACD continues with its Sell signal despite being positive. RSI has reduced to 58 suggesting a reduction in bullish momentum. Besides it also exhibits negative divergence of the first order. Stochastic Oscillator continues in Sell mode as %K is below %D. MFI has reduced to 55, suggesting that the money inflow has reduced. OBV has started moving lower but is yet to give a Sell signal. The Directional Indicators continue in Buy mode as +DI is above –DI. Bollinger Band continues with its Buy signal given last month. ADX is now at a level of 52 which suggests that the strength of the current uptrend is very high but the trend is now maturing. Hence Oscillator analysis suggests remaining cautious as some correction in the current uptrend can be expected. 

India VIX, has started to move higher and is now around 19. One can expect a breakout if VIX closes above 22, paving the way towards a level of 28.  Highest Put writing is seen at the strike of 7500 and highest Call writing is at the strike of 7700. Thus one can expect a range of the market between 7500 and 7700. On Friday, there was strong buildup in the strike of 7550 for both Calls and Puts, which suggests that the Option writers or the Strategy makers are creating Short Straddle strategy to take benefit of the remaining Time Value. For the next month highest Open interest buildup is for 8000 Call and 7300 Put. Thus for the next month series we can expect a bigger range between 7300 on the lower side and 8000 on the higher side.

For the week ahead, Sensex will find Support at 24828-24422-24156 and will find Resistance at 25419-25735-26124.

For the week ahead, Nifty will find Support at 7399-7269-7172 and will find Resistance at 7621-7742-7838.

INDEX LEVELS:

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

7172

7269

7399

7511

7621

7742

7838

Sensex

24156

24422

24828

25105

25419

25735

26124

LAST WEEKS RECOMMENDATIONS:

STOCK

Reco. Price

Tgt

Reached

Lot Size

Profit

Sell SBI

2607

2526

2547

125

Rs. 7,500

Sell BoB

840

801

813

500

Rs.13,500

Sell HPCL

393

381

381

1000

Rs.12,000

Sell UBL

721

692

681

500

Rs.20,000

Sell Bhel

237

229

232

2000

Rs.10,000

Total

Rs.63,000

THIS WEEKS RECOMMENDATIONS:

STOCK

CMP

SL

Tgt-1

Tgt-2

Sell ReLInfra

726

745

698

668

Sell PNB

951

974

914

875

Sell CanBnk

422

435

404

385

Sell AdaniEnt

449

462

430

410

Sell JPAss

71

73

67

63

WATCH OUT FOR:

JP Associates

Adani Entp

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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