Archives : LIFE HIGHS, BUT LACKING IN CONVICTION - 25/07/2014.

LIFE HIGHS, BUT LACKING IN CONVICTION –  25/07/2014.

MARKET BREADTH VERY NARROW.

Even though the market reclaimed the previous high, the conviction amongst the market participants is missing. The Nifty scaled past the top of 7808 with major help coming from IT sector stocks especially TCS. If we discard contributions from pharma and consumer goods stocks, the current rally has been extremely narrow. This does not augur well for the market as the current movement in Nifty is not reflecting the real mood of the broader market. This is not a new phenomenon in a Bull market and hence it will not be surprising to see the broader market especially mid-caps and small-caps try catching up with the Nifty later on. So if the Nifty sustains above the level of 7808, then we can expect a catch-up rally in the overall market.

FAILURE OF TWO PATTERNS.

The surprising part here is the failure of two patterns viz. the Bearish Rising Wedge on the daily charts and Bearish Engulfing on the weekly charts. Normally a pattern failure is usually followed by a strong directional movement which is missing currently. Hence it only conveys a complete sense of disbelief prevailing amongst the market participants.

 

 


LIFE HIGHS, BUT LACKING IN CONVICTION –  25/07/2014.

MARKET BREADTH VERY NARROW.

Even though the market reclaimed the previous high, the conviction amongst the market participants is missing. The Nifty scaled past the top of 7808 with major help coming from IT sector stocks especially TCS. If we discard contributions from pharma and consumer goods stocks, the current rally has been extremely narrow. This does not augur well for the market as the current movement in Nifty is not reflecting the real mood of the broader market. This is not a new phenomenon in a Bull market and hence it will not be surprising to see the broader market especially mid-caps and small-caps try catching up with the Nifty later on. So if the Nifty sustains above the level of 7808, then we can expect a catch-up rally in the overall market.

FAILURE OF TWO PATTERNS.

The surprising part here is the failure of two patterns viz. the Bearish Rising Wedge on the daily charts and Bearish Engulfing on the weekly charts. Normally a pattern failure is usually followed by a strong directional movement which is missing currently. Hence it only conveys a complete sense of disbelief prevailing amongst the market participants.

TECHNICALLY SPEAKING.

Sensex opened the week at 25776, made a high of 26300, low of 25677 and closed the week at 26126. Thus it closed the week with a gain of 485 points. At the same time the Nifty opened the week at 7701, made a high of 7840, low of 7674 and closed the week at 7790. Thus the Nifty closed the week with a gain of 127 points.

Both the indices have formed a small black body candle on the daily charts on Friday. On the weekly charts, both Sensex and Nifty have formed a real white body candle. The weekly Bearish Engulfing pattern got negated this week when Sensex closed the week above 26039 and Nifty above 7780. Thus Candlestick pattern study indicates uncertainty in the short term.

On Thursday, when Sensex closed above 26190 and Nifty above 7808, the Bearish Rising Wedge pattern got negated. It now seems as if the market is making a Broadening pattern. Interestingly the failure of the pattern has not been accompanied by a strong directional movement; hence it only underlines lack of conviction in the market.

The 38.2% Retracement level of the immediate correction (Sensex 24695 and Nifty 7361) and an intermediate bottom (Sensex – 24644 and Nifty 7360) are forming a confluence zone. Thus Sensex 24695-24644 and Nifty 7361-7360 will act as strong Support zone. A breach of this Support zone will turn the medium term trend down.

On a higher scale, a very strong Support zone is formed between Sensex 23811-23729 and Nifty 7092-7067. This is a result of confluence of 38.2% Retracement of the higher rally (Sensex – 23811 and Nifty 7092), 61.8% Retracement of the immediate rally (Sensex – 23771 and Nifty 7085) and the start of the intermediate Bullish Rising Gap (Sensex 23729 and Nifty 7067). The long term trend will continue to remain bullish as long as this Support zone is held.

This week both Sensex and Nifty continue to remain above the short term average of 20dma (Sensex – 25666 and Nifty – 7661), the medium term average of 50dma (Sensex – 25241 and Nifty – 7538) and the long term average of 200dma (Sensex – 22278 and Nifty – 6640). Thus the trend in the short term timeframe, medium term and long term timeframe continues to remain up.

MACD and Price ROC both continue to be positive and in Buy mode. RSI is at 63, indicating bullish momentum is intact. Stochastic Oscillator %K (94), despite being overbought, continues in Buy mode as it remains above %D. ADX continues to remain at 33, which suggests that the prevailing uptrend is still strong. The Directional Indicators continue in Buy mode as +DI remains above –DI. OBV remains sideways and hence does not confirm to the current upward price movement. MFI has dropped to the equilibrium line at 50, suggesting that the positive money flow is equal to negative money flow. If the price moves lower, then negative divergence of the second order will be confirmed for the RSI and MACD. Thus Oscillators are painting a mixed picture in the near term.

Option writing for the current month series suggests support coming in at 7700 and resistance at 8000.  While the data for the next month series suggests a range of 7300 on the lower side and 8000 on the higher side. Friday saw strong Put writing at 7700 strike which indicates immediate support at that level.

Strong Trendline Support for the Sensex is at 24901. Trendline Resistance for the Sensex is at 26512.

Strong Trendline Support for the Nifty is at 7409. Trendline Resistance for the Nifty will be at 7888.

INDEX LEVELS:

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

7487

7595

7700

7790

7860

7959

8027

Sensex

25063

25375

25735

26126

26518

26812

27081

LAST WEEKS RECOMMENDATIONS:

STOCK

Reco. Price

Tgt

Reached

Lot Size

Profit

Petronet

186

194

189

2000

Rs.6,000

AxisBank

1995

2041

2043

250

Rs.12,000

Buy ABNuvo

1428

1470

1450

250

Rs.5,500

Buy IDFC

163

171

167

2000

Rs.8,000

ApolloHosp

1086

1118

1129

250

Rs.10,750

Total

Rs.42,250

THIS WEEKS RECOMMENDATIONS:

STOCK

CMP

SL

Tgt-1

Tgt-2

Buy TTKPrestige

3977

3875

4123

4273

Buy DrReddy

2744

2690

2824

2907

Buy TechMah

2176

2139

2232

2289

Buy Lupin

1129

1110

1161

1194

Buy HCLInfo

79

77

83

88

WATCH OUT FOR:

TTK Prestige

Idea

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