BOOSTER SHOT BY RAJAN; MARKET REBOUNDS - 01/10/2015.

SHORT TERM TREND TURNS POSITIVE.

In a move least expected, the RBI governor surprised the market by giving a 50bps cut in interest rates. The surprise move acted like a booster shot for the market as the Nifty regained lost ground and ended the week by touching 8000 levels in intraday on Friday. As a result, the short term trend has turned positive. A close above Nifty 8055 will propel the market into the strong Resistance zone of Nifty 8091-8225, which should be used to create short positions from a medium term perspective.

BOOSTER SHOT BY RAJAN; MARKET REBOUNDS - 01/10/2015.

SHORT TERM TREND TURNS POSITIVE.

In a move least expected, the RBI governor surprised the market by giving a 50bps cut in interest rates. The surprise move acted like a booster shot for the market as the Nifty regained lost ground and ended the week by touching 8000 levels in intraday on Friday. As a result, the short term trend has turned positive. A close above Nifty 8055 will propel the market into the strong Resistance zone of Nifty 8091-8225, which should be used to create short positions from a medium term perspective.

TECHNICALLY SPEAKING.

Sensex opened the week at 25922, made a high of 26431, low of 25287 and closed the week at 26220. Thus it closed the week with a gain of 537 points. At the same time the Nifty opened the week at 7892, made a high of 8008, low of 7691 and closed the week at 7950. Thus the Nifty closed the week with a gain of 82 points.

On the weekly charts both the indices have formed a small white body candle with a long lower shadow which indicates buying at lower levels. On the daily charts both Sensex and Nifty have formed a small black body candle with an upward gap. It is almost like an In-Neck bullish continuation pattern. Thus daily and weekly candlestick study suggests a minor bullish bias in the near term.

We are in midst of a pull-back of the fall from Sensex 28578 and Nifty 8654. The corresponding Retracement levels are placed at Sensex 26264-26706-27147 and Nifty 7965-8097-8228 for the Nifty.

Market is facing Resistance in the form of Trendline which is at Sensex 26350 and Nifty 8031. Any close above this resistance will lead the market higher to test the strong Resistance zone which is due to the critical Bearish Falling Gap on daily as well as weekly chart i.e. between Sensex 26730-27131 and Nifty 8091-8225.

Despite the current pull-back, both the indices remain on track to achieve the targets for Head and Shoulders pattern (Sensex 24486 and Nifty 7425). Besides a higher degree Head and Shoulders got completed recently, the target for that falls at Sensex 22552 and Nifty 6741.

MACD and Price ROC continue in Buy mode. RSI (51) has gone above the equilibrium line suggesting bullish momentum. Stochastic oscillator (66) continues in Buy mode as %K remains above %D. ADX @ 35 suggests that the current down trend is still strong. Directional indicators continue in Sell mode. MFI continues to hover above the equilibrium line suggesting positive money flow. OBV has started making higher top higher bottom formation. Thus Oscillators are showing a bullish bias in the near term.

This week, both the indices once again overcame the short term average of 20dma (Sensex – 25731 and Nifty – 7823) but still remains below the medium term average of 50dma (Sensex – 26776 and Nifty – 8130) and the long term average of 200dma (Sensex – 27689 and Nifty – 8381). Thus the trend in the short term has turned up whereas that in the medium term and even the long term timeframe continues to remain bearish.

Volatility Index India VIX dropped by 8% for the week as the market experienced Volatility crunch post the RBI announcement. Options data for October series indicates highest Put Open Interest build-up at the strike of 7500 and highest Call build-up at the strike of 8300. Thus Option data suggests a trading range with support coming in at 7500 and resistance at 8300.

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