Archives : MUCH AWAITED CORRECTION BEGINS - 11/08/2017.

MUCH AWAITED ‘CORRECTION’ BEGINS - 11/08/2017.

 

TREND TURNS BEARISH.

 

‘Correction’ is one of the most interesting aspects of market behaviour. It is desired by market participants when the market moves up considerably; whereas when it actually sets in, the same market participants dread and pray for its end. The truth remains that for any rally to sustain and head higher, it has to undergo a Correction which not only makes it stronger but also ready for higher targets. After grappling with the target zone of Nifty 10100-10400 for almost two weeks, Correction has set in and we are now looking at the Correction levels for this entire Upward Rally which begun from Sensex 25717 and Nifty 7893. In the process, the short term and medium term Trend has turned bearish and hence we can expect selling pressure on every rise.



MUCH AWAITED ‘CORRECTION’ BEGINS - 11/08/2017.

 

TREND TURNS BEARISH.

 

‘Correction’ is one of the most interesting aspects of market behaviour. It is desired by market participants when the market moves up considerably; whereas when it actually sets in, the same market participants dread and pray for its end. The truth remains that for any rally to sustain and head higher, it has to undergo a Correction which not only makes it stronger but also ready for higher targets. After grappling with the target zone of Nifty 10100-10400 for almost two weeks, Correction has set in and we are now looking at the Correction levels for this entire Upward Rally which begun from Sensex 25717 and Nifty 7893. In the process, the short term and medium term Trend has turned bearish and hence we can expect selling pressure on every rise.

 

TECHNICALLY SPEAKING.

 

Sensex opened the week at 32377, made a high of 32396, low of 31128 and closed the week at 31213. Thus it closed the week with a loss of 1112 points. At the same time the Nifty opened the week at 10074, made a high of 10088, low of 9685 and closed the week at 9710. Thus the Nifty closed the week with a loss of 356 points.

 

On the daily charts, Nifty has formed a Bullish Doji which is a bullish reversal pattern but requiring confirmation whereas Sensex has formed a black body candle. On the weekly charts, both Sensex and Nifty have formed a big Opening Black body Marubuzo which has engulfed previous four weeks bullish candles. Thus more than daily, weekly candlestick pattern suggests strong bearishness in the near term.

 

The fall this week took the market sharply lower and it has taken support at the Support Trendline which is at Sensex 31200 and Nifty 9685. A breach of this Trendline will push the market lower towards testing of intermediate bottom of Sensex 30680 and Nifty 9448.

 

This week finally witnessed the much awaited Correction, which is the first major Correction in this entire rally of almost Sensex 7000 points and Nifty 2200 points, which began in last December. The Correction levels are placed at Sensex 30024-29202-28379 and Nifty 9280-9015-8751.

 

The current Rally has produced two major Bullish Gaps. The first Bullish gap is on daily charts, between Sensex 29780-29681 and Nifty 9250-9225 will act as strong Support. The second Bullish Gap which is more critical as it is also a Weekly Gap i.e. between Sensex 29356-29098 and Nifty 9060-8977 hold the key to the long term trend.

 

This week, both the indices breached both the short term average of 20dma (Sensex – 32109 and Nifty – 9962) and even the medium term average of 50dma (Sensex – 31616 and Nifty – 9774) and closed below that. But both the indices continue to remain above the long term average of 200dma (Sensex - 29118 and Nifty – 9003). Thus the Trend in the short term and medium term timeframe has turned bearish, whereas the trend in the long term timeframe continues to remain upwards.

 

The weekly Bullish Gap between Sensex 29356-29098 and Nifty 9060-8977 forms a strong confluence Support zone as it encompasses the 200dma (Sensex - 29118 and Nifty - 9003) as well as the 50% Retracement level (Sensex - 29202 and Nifty - 9015). Thus if the Correction deepens then the indices will be finding this Gap Support as very strong and difficult to breach. Interestingly, this is the level where the current Cup and Handle formation was completed and a retest of the neckline will be good for the overall health of the market.

 

On the weekly formation, both the indices had completed a Cup and Handle formation and the targets are Sensex 34677-37554 and Nifty 10536-11413. If one considers the Cup and Handle formation of 7 years from 2007 to 2014, the target for that pattern falls at Sensex 34715 and Nifty 10462. The Golden Ratio target of the current pattern weekly pattern of 2 years is at Sensex 34677 and Nifty 10536. Thus in the medium term one can expect a test of the above targets i.e. Sensex 34677-34715 and Nifty 10462-10536.

 

MACD and Price ROC, both continue in Sell mode. RSI (36) suggests strong bearish momentum. Stochastic Oscillator %K (12) is not only oversold but also below %D and hence in Sell mode. ADX is at 28, which suggests that the trend is strong. Directional Indicators continue in Sell mode as +DI has gone below –DI. MFI (50) suggests Positive Money Flow. OBV is in Sell mode as it has started making lower top, lower bottom formation. Bollinger Band has signalled a Sell this week as the indices have managed a close below the lower Bollinger Band. Thus Oscillators are suggesting a bearish bias.

 

Options data for August series indicate highest Call Open Interest has shifted lower at the strike of 10000 and highest Put build-up has also shifted lower to 9500. Thus Options data suggests a wide trading range with resistance coming in at 10000 and support at 9500.

 

INDEX LEVELS:

 

 

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

9448

9535

9615

9710

9792

9893

9988

Sensex

30247

30638

30921

31213

31626

32104

32396

 

 

THIS WEEKS RECOMMENDATIONS:

 

STOCK

CMP

SL

Tgt-1

Tgt-2

Sell Maruti

7457

7588

7255

7044

Sell PEL

2701

2760

2610

2518

Sell PVR

1286

1318

1238

1188

Sell STFC

952

974

919

885

Sell ONGC

160

164

154

148

 

WATCH OUT FOR:

 

PVR
 
M&M

 

 

 

 

 

 

 

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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