Archives : PAUSE IN THE CORRECTION - 24/08/2017.

PAUSE IN THE CORRECTION - 24/08/2017.

 

CORRECTION TO INTENSIFY BELOW 9740.

 

Last three weeks have seen market moving in a trading range between Sensex 31128-31937 and Nifty 9685-9947. The Correction will intensify, if we close below the critical Trendline Support of Sensex 31330 and Nifty 9740. Not only will the lower boundary of the trading range be broken, but also the doors will be open to testing lower Correction levels which are placed at Nifty 9280-9015-8751.

 

 


PAUSE IN THE CORRECTION - 24/08/2017.

 

CORRECTION TO INTENSIFY BELOW 9740.

 

Last three weeks have seen market moving in a trading range between Sensex 31128-31937 and Nifty 9685-9947. The Correction will intensify, if we close below the critical Trendline Support of Sensex 31330 and Nifty 9740. Not only will the lower boundary of the trading range be broken, but also the doors will be open to testing lower Correction levels which are placed at Nifty 9280-9015-8751.

 

TECHNICALLY SPEAKING.

 

Sensex opened the week at 31609, made a high of 31678, low of 31220 and closed the week at 31596. Thus it closed the week with a gain of 72 points. At the same time the Nifty opened the week at 9864, made a high of 9884, low of 9740 and closed the week at 9857. Thus the Nifty closed the week with a gain of 20 points.

 

On the daily charts, both Sensex and Nifty have formed a very small Opening Black body Marubuzo, which is almost like a neutral formation. On the weekly charts, both the indices have formed a Dragon Fly Doji except for small upper shadow. Thus daily as well as weekly candlestick patterns suggest sideways to bearishness in the near term.

 

Two weeks back, the indices bounced back after taking Support at the critical Trendline which is at Sensex - 31330 and Nifty - 9740. A breach of this Trendline will push the market lower towards testing of intermediate bottom of Sensex 30680 and Nifty 9448. A further intensification in Correction will see the indices testing the Correction levels of entire rally of Sensex 7000 points and Nifty 2200 points. The relevant Correction levels are placed at Sensex 30024-29202-28379 and Nifty 9280-9015-8751.

 

The Correction will be deemed complete only when the indices close above their respective Resistance zone of Sensex 31937-32091 and Nifty 9947-9965 which is due to the confluence of intermittent top and 61.8% Corrective level of the current fall. A closing above this Resistance zone will signal the end of Correction and a resumption of prior Uptrend.

 

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 tested the medium term average of 50dma (Sensex – 31667 and Nifty – 9804); Sensex has closed below the 50dma, whereas Nifty has closed above that. But both the indices continue to remain below the short term average of 20dma (Sensex – 31895 and Nifty – 9926) and above the long term average of 200dma (Sensex - 29271 and Nifty – 9054). Thus the Trend in the short term remains bearish, whereas the trend in the medium term and 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 - 29271 and Nifty - 9054) 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 are both negative and continue in Sell mode. RSI (49) suggests bearish momentum. Stochastic Oscillator %K is above %D and hence in Buy mode. ADX has dropped further to 22, which suggests that the trend is still intact, but losing strength. Directional Indicators continue in Sell mode as +DI remains below –DI. MFI (47) suggests Negative Money Flow. OBV continues in Sell mode. Bollinger Band continues with its Sell signal which was given two weeks back. Thus Oscillators are suggesting a bearish bias.

 

Options data for August series indicate highest Call Open Interest remains at the strike of 10000 whereas the highest Put build-up is at 9800. Thus Options data suggests a narrow trading range with resistance coming at 10000 & support at 9800.

 

INDEX LEVELS:

 

 

S3

S2

S1

CLOSE

R1

R2

R3

Nifty

9535

9646

9740

9857

9947

10044

10137

Sensex

30680

30965

31220

31596

31937

32377

32686

 

THIS WEEKS RECOMMENDATIONS:

 

This week the market is expected to be very volatile and hence Pair Strategies are suggested to be done on a rupee neutral basis.

 

PAIR NO.

STOCK

CMP

SL

TGT - 1

TGT -2

1

Buy

Bajaj Finserv

5506

5375

5703

5911

Sell

Bajaj Auto

2728

2790

2635

2540

2

Buy

Pidilite

829

815

850

872

Sell

Indigo

1187

1215

1145

1102

3

Buy

BeL

187

182

195

204

Sell

Kotak Bnk

972

992

952

920

 

 

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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