Archives : ITS A PULL-BACK; NOT A REVERSAL - 22/01/2016.

ITS A PULL-BACK; NOT A REVERSAL - 22/01/2016.

TWO QUESTIONS.

There remains two questions on every market participants mind – 1. Has the bottom been made?  2. Has the trend reversed? To understand the answer, one has to have a clear perspective of the current trend and the magnitude of fall. There is little doubt that the long term, medium term and short term trend remains bearish. The magnitude of fall is so huge that such bounce-backs are common place. It can be classified as a dead cat bounce. Once this bounce is complete, the downtrend will resume. Hence one should not indulge in bottom picking now, as the recent bottom will be retested sooner or later and with a bright chance of breaking that.

SUPPORT AT GOLDEN RATIO.

As envisioned last week, the bears attacked the small and midcap universe with full force. As a result the small and midcap stocks lost heavily, with many losing around 10 to 20%. After losing considerably in the initial part of the week, both Sensex and Nifty recovered smartly after finding support at the golden ratio target (Sensex 23846 and Nifty 7292).


ITS A PULL-BACK; NOT A REVERSAL - 22/01/2016.

TWO QUESTIONS.

There remains two questions on every market participants mind – 1. Has the bottom been made?  2. Has the trend reversed? To understand the answer, one has to have a clear perspective of the current trend and the magnitude of fall. There is little doubt that the long term, medium term and short term trend remains bearish. The magnitude of fall is so huge that such bounce-backs are common place. It can be classified as a dead cat bounce. Once this bounce is complete, the downtrend will resume. Hence one should not indulge in bottom picking now, as the recent bottom will be retested sooner or later and with a bright chance of breaking that.

SUPPORT AT GOLDEN RATIO.

As envisioned last week, the bears attacked the small and midcap universe with full force. As a result the small and midcap stocks lost heavily, with many losing around 10 to 20%. After losing considerably in the initial part of the week, both Sensex and Nifty recovered smartly after finding support at the golden ratio target (Sensex 23846 and Nifty 7292).

TECHNICALLY SPEAKING.

Sensex opened the week at 24400, made a high of 24563, low of 23839 and closed the week at 24435. Thus it closed the week with a minor loss of 20 points. At the same time the Nifty opened the week at 7420, made a high of 7470, low of 7241 and closed the week at 7422. Thus the Nifty closed the week with a loss of 15 points.

On the weekly charts, both the indices have formed a Doji formation. It is a Bullish Doji pattern which requires confirmation in the form of a white body candle next week. On daily charts, both the indices completed a Tweezer Bottom on Thursday and followed that with a real white body candle. Thus daily and weekly candlestick study indicates bullish bias in the near term.

Considering the rally from Sensex 25287 to 27618 and Nifty from 7691 to 8336, the golden ratio of this rally falls at Sensex 23846 and Nifty 7292. This week, both the indices made a Tweezer bottom at this golden ratio support before staging a short term recovery. The relevant Retracement levels are 24740-25018-25297 for the Sensex and 7520-7607-7693 for the Nifty.

The Bearish Downward Gap between 25230-25357 for the Sensex and 7674-7721 for the Nifty will act as a strong Resistance going forward as it also includes the 61.8% Retracement level (Sensex – 25297 and Nifty – 7693). Thus the current Pull-Back rally is unlikely to cross this critical Resistance zone.

In the higher timeframe, both the indices are retracing the strong long term upward rally which started from Sensex 17448 and Nifty 5118. The relevant Correction levels are placed at Sensex 25220-23736-22252 and Nifty 7591-7119-6646.

Despite taking support at the golden ratio this week, both the indices remain on course to achieve the recent Bearish Head and Shoulders pattern target which is at Sensex 23276 and Nifty 7092. Also the higher degree Head and Shoulders still holds good, the target for which falls at Sensex 22552 and Nifty 6741.

MACD and Price ROC are both negative and continue in Sell mode. RSI (40) suggests bearish momentum. OBV continues to make lower top lower bottom formation and hence in Sell mode. MFI (24) indicates negative money flow in the market. ADX has increased to 43; indicates that the downtrend is very strong. The Directional Indicators continue in Sell mode as +DI remains below –DI. Thus majority of Oscillators are suggesting a bearish bias in the near term.

This week, both the indices remained well below the short term average of 20dma (Sensex – 25073 and Nifty – 7627), the medium term average of 50dma (Sensex – 25436 and Nifty – 7739) and even the long term average of 200dma (Sensex – 26777 and Nifty – 8119). Thus the trend in the short term timeframe, medium term and long term timeframe continues to remain bearish.

Options data for current month series indicates highest Put Open Interest build-up at the strike of 7300 and highest Call build-up at the strike of 7500. Thus Option data suggests a narrow trading range with resistance coming in at 7500 and support at 7300.

LAST WEEKS RECOMMENDATIONS:

STOCK

Reco. Price

Tgt

Reached

Lot Size

Profit

Sell MRF

37688

35136

34500

15

Rs.47,820

EicherMot

16240

14927

14800

25

Rs.36,000

Sell HDFC

1150

1127

1121

400

Rs.11,600

TorntPh

1324

1286

1271

400

Rs.21,200

Sell STFC

765

739

737

600

Rs.16,800

Total

Rs.1,33,420.

INDEX LEVELS:

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

7130

7241

7336

7422

7539

7607

7721

Sensex

23537

23839

24141

24435

24833

25230

25656

THIS WEEKS RECOMMENDATIONS:

STOCK

CMP

SL

Tgt-1

Tgt-2

Sell Britannia

2616

2678

2521

2424

Sell Grasim

3447

3515

3344

3239

Sell CoLPaL

882

901

852

821

Sell HUL

772

789

746

719

Sell CastroL

418

427

402

385

WATCH OUT FOR:

CoLPaL

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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