Archives : WILL HOPE BE DELIVERED - 04/07/2014

WILL ‘HOPE’ BE DELIVERED? –  04/07/2014.

PRE-BUDGET RALLY IN FULL SWING.

The Bulls are in supreme command as the market finished the week at record highs, completing a Bullish Flag pattern. As the expectations keep rising, the budget will prove to be a litmus test for Team Modi. In such an optimistic market scenario, Team Modi will have very little room for error. I have little doubt whether they will deliver their promises or not; but my concern is more related to the market’s expectations whether that will prove to be enough. If not, then expect a sharp Sell-off. They not only have to deal with burgeoning Fiscal Deficit but also announce measures to revive Growth in the economy and at the same time keep headline Inflation in check. The Budget is likely to focus on Infrastructure development, Tax reforms, Subsidy sharing mechanism, Power, Education and Employment.

FOCUS STOCKS.

Majority of the stocks which are likely to remain in focus in the coming Budget week belong to the public sector. Here are certain stocks, which are well positioned technically to take advantage of any positive announcements that might come in the Budget and thus they will hold the markets attention in the coming week.

1. Government owned Logistics company - Container Corporation.

2. State owned Fertiliser companies – RCF and GNFC.

3. State owned loss making PSU companies - MTNL, HMT and ITI.

4. Government owned Power companies – REC and Power Grid.

5. State owned Energy Oil/Gas companies – Gail and HPCL.

6. State owned Defence company – Bharat Electronics BEL.

7. Agricultural and Irrigation Stock – Jain Irrigation.

 

 


WILL ‘HOPE’ BE DELIVERED? –  04/07/2014.

PRE-BUDGET RALLY IN FULL SWING.

The Bulls are in supreme command as the market finished the week at record highs, completing a Bullish Flag pattern. As the expectations keep rising, the budget will prove to be a litmus test for Team Modi. In such an optimistic market scenario, Team Modi will have very little room for error. I have little doubt whether they will deliver their promises or not; but my concern is more related to the market’s expectations whether that will prove to be enough. If not, then expect a sharp Sell-off. They not only have to deal with burgeoning Fiscal Deficit but also announce measures to revive Growth in the economy and at the same time keep headline Inflation in check. The Budget is likely to focus on Infrastructure development, Tax reforms, Subsidy sharing mechanism, Power, Education and Employment.

FOCUS STOCKS.

Majority of the stocks which are likely to remain in focus in the coming Budget week belong to the public sector. Here are certain stocks, which are well positioned technically to take advantage of any positive announcements that might come in the Budget and thus they will hold the markets attention in the coming week.

1. Government owned Logistics company - Container Corporation.

2. State owned Fertiliser companies – RCF and GNFC.

3. State owned loss making PSU companies - MTNL, HMT and ITI.

4. Government owned Power companies – REC and Power Grid.

5. State owned Energy Oil/Gas companies – Gail and HPCL.

6. State owned Defence company – Bharat Electronics BEL.

7. Agricultural and Irrigation Stock – Jain Irrigation.

TECHNICALLY SPEAKING.

Sensex opened the week at 25179, made a high of 25999, low of 25179 and closed the week at 25962. Thus it closed the week with a strong gain of 863 points. At the same time the Nifty opened the week at 7534, made a high of 7758, low of 7531 and closed the week at 7751. Thus the Nifty closed the week with a gain of 243 points.

This week, the Mat Hold pattern got completed when both the indices formed a big Opening White body Marubuzo which closed above the high of the previous three weeks i.e. Sensex 25735 and Nifty 7700. Mat Hold is a Bullish Continuation pattern where the previous three weeks were spent in consolidating and this week’s big white body candle indicates that the prior uptrend has now resumed. On the daily charts both the indices have formed a white body candle with a long lower shadow which indicates buying at lower levels. Thus daily as well as weekly formations point towards a strong bullish bias in the near term.

The market took support at the short term moving average of 20dma before bouncing back. While bouncing back, it has once again left behind a bullish Rising Gap between Sensex 25660-25571 and Nifty 7677-7649. This gap will act as a Support Zone and it did act as one on Friday, when both the indices took support at this Gap before bouncing back. Hence in the immediate term one can expect this gap to act as strong support. Stronger support in the short term will be seen at Sensex 24878 and Nifty 7441 which are the intermittent lows for the indices.

When the indices closed above their previous tops of Sensex 25735 and Nifty 7700, they completed a Bullish Flag pattern on the weekly charts, which is a bullish continuation pattern. The target as per this pattern is expected to be around Sensex 27307 and Nifty 8282. The targets are likely to be achieved as long as the Sensex stays above 24878 and Nifty above 7441.

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 are Sensex 27081 and Nifty 8145.

Both Sensex and Nifty have managed to overcome the short term average of 20dma (Sensex – 25407 and Nifty – 7599). They continue to remain well above the medium term average of 50dma (Sensex – 24435 and Nifty – 7298) and the long term average of 200dma (Sensex – 21845 and Nifty – 6507). Thus the trend in the short term has turned bullish while that in the medium term and the long term timeframe continues to remain up.

MACD has just managed to register a Buy signal for the Sensex whereas the Nifty awaits its turn. ROC too has turned positive and thus continues with its Buy signal. RSI @ 69 suggests that the bullish momentum is very strong. Stochastic Oscillator continues in Buy mode as %K is above %D. MFI (47) has increased somewhat but is still below the equilibrium line, suggesting that there is negative money flow. OBV has started moving higher but is yet to cross the previous top. The Directional Indicators continue in Buy mode as +DI is above –DI but they are converging. A fresh Buy signal got generated on Bollinger Band when the Nifty closed above the upper Bollinger Band on Wednesday. ADX has dropped slightly and is now at a level of 40 which suggests that the strength of the current uptrend is still high. Thus Momentum Oscillators along with Bollinger Band have turned positive but OBV needs to be checked over the next few days as it is still not conforming to the trend. 

Highest Call writing is seen at the strike of 8000 and highest Put writing is seen at the strike of 7500. Thus the market is expecting a trading range between 7500 and 8000. Friday saw strong buildup at 8200 Call and 7400 Put suggesting that in the short term we may see an expansion in trading range and thus one can expect an increase in Volatility. Thus India VIX, which is still at a low level of around 18, is expected to increase till the budget. If it closes above 22, it will lead to breakout and will pave the way towards 28.

For the week ahead, Sensex will find Support at 25571-25175-24878 and will find Resistance at 26264-26587-27081.

For the week ahead, Nifty will find Support at 7649-7534-7441 and will find Resistance at 7860-7974-8118.

INDEX LEVELS:

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

7441

7534

7649

7751

7860

7974

8118

Sensex

24878

25175

25571

25962

26264

26587

27081

LAST WEEKS RECOMMENDATIONS:

PAIR NO.

STOCK

Recomm@

Target

Reached

1

Buy

TechMah

2125

2174

2166

Sell

ICICI

1384

1350

1384

2

Buy

Buy Titan

353

363

362

Sell

CoalInd

380

367

380

3

Buy

KPIT

169

175

182

Sell

Idea

130

125

130

THIS WEEKS RECOMMENDATIONS:

STOCK

CMP

SL

Tgt-1

Tgt-2

Buy OFSS

3191

3144

3271

3361

Buy ConCorp

1270

1241

1317

1369

Buy JsWHoldings

865

834

915

970

Buy REC

374

367

385

397

Buy ITI

32

30

36

40

WATCH OUT FOR:

JsW Holding

SREI Infra

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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