Weekly Outlook of Nifty from July 15 - July 19

The street enjoyed the bullish momentum with INFY declaring better than expected results. During the week NIFTY made a high of 6019 and closed at 6009. IIP number surprisingly turned out to be negative 1.6%. CPI inflation rose almost to double digits. Oil prices have gone past the $100 mark, putting pressure on the current account deficit. Gold imports have dropped a bit justifying the deficit somewhat.

The weekly chart of Nifty projects the intact upside direction of the stock market. Index has crossed the hurdle at 5970 and now seems to cross the last hurdle at 6070 level. The bullish momentum looks like unstoppable but market is now in overbought zone and can give unexpected correction before the rally continues. Looking at the Derivative data a change and drop in 6000 Call Options Open Interest due to unwinding of positions suggests that the upper limit for NIFTY index now seems at 6100. Hence the next target for NIFTY Index above 6020 is at 6052-6130.

Conclusion: Chart patterns of Sensex and Nifty are preparing to rise to new highs. However, fundamentals seem to be worsening, so some caution should be implemented. Nifty is in overbought zone so it is expected to enter into a correction mode as soon as it approaches 6050-6130 range or if breaks the crucial support of 5950 on lower side. The target for this correction would be around 5800/5775.

Weekly Outlook of Nifty from June 24 - June 28

Last week it was mentioned that ‘The index was in oversold state and Nifty exactly took support from the trend line support at 5690 and bounced back forming a bullish reversal pattern known as ‘Morning Star’. Nevertheless 70% of the up move was due to short covering. Considering the trend line support of 5690 in Nifty fut plus the short covering with the bullish pattern of ‘Morning Star’ I expect the market to rise further till 5950. Nevertheless this bounce back should be treated as a Dead cat bounce.’ What happened next? Nifty dead cat bounce took it to 5863 and then there was a global sell off seen in equity and bond markets which pulled down nifty back near 5600.

The present correction may be providing a good opportunity to add fundamentally strong stocks at reasonable prices. There is good reason for investors to feel bearish as FIIs have been selling for two straight weeks. Technically, the weekly chart of Sensex has closed below its 50 week EMA and Weekly technical indicators are turning bearish.

The 18500 level and 18186 is likely to act as a support. The longer-term up trend line has not been tested and breached.

A drop below 18150 may lead to a test of the uptrend line. A breach of this up trend line currently seen at 17250 may end the 18 months long bull phase. So, be cautious and keep appropriate stop-losses, but no need to panic.

The daily chart of Nifty shows a break down below the ‘falling wedge’ pattern followed by a ‘pullback’ to the lower edge of the wedge. Despite an intra-day breach of the uptrend line of Nifty fut at 5690, the Nifty index has just tested the uptrend line which is near 5600 and the Sensex closed on top of the line, giving temporary breather to bulls.

Now the situation has turned trickier. The technical indicators as well as Derivatives indicators are in oversold zone but smart money indicator is not showing any sign of recovery and on the contrary it is turning worse.

Conclusion: As per the charts major technical indicators are in oversold zone. The highest open interest is for Put option at 5600 strike price and there was further addition on Friday which suggests that it is very unlikely that NIFTY index can break 5600 level before this expiry. However, there is equal addition in Call option open interest too. Note some positive divergence is also seen in Nifty. So I suggest to short NIFTY only if it breaks 5600 along with decline in open interest for Put options in the coming week. Otherwise I think Index is ready for another sharp bounce till 5776 before expiry on this Thursday.

Weekly Outlook of Nifty from June 17 - June 21

As expected and mentioned last week Nifty corrected till 5700/5670 placing a low of 5683 for the week and exactly bounced from the trend line support of 5690. I also suggested to add positions on the correction I hope NIFTY traders minted money in longs as well.

Sensex broke down below the ‘falling wedge’ pattern and closed below the 200 day EMA for a day, before Friday’s upward bounce on short covering pulled the index back towards the ‘wedge’. Such pullbacks are generally selling opportunities, so it won’t be surprising if the down move resumes next week.

However a small bullish ‘island reversal’ pattern is seen on the charts. But the pattern will get confirmed only if the Sensex resumes its up move.

Keep a close watch on the trend line which is seen at 18660 mark. Any drop below may lead to further correction.

Conclusion: The index was in oversold state and Nifty exactly took support from the trend line support at 5690 and bounced back forming a bullish reversal pattern known as ‘Morning Star’. Nevertheless 70% of the up move was due to short covering. Considering the trend line support of 5690 in Nifty fut plus the short covering with the bullish pattern of ‘Morning Star’ I expect the market to rise further till 5950. Nevertheless this bounce back should be treated as a Dead cat bounce. 

Weekly Outlook of Nifty from June 10th - June 14th

As mentioned 2 weeks back the index faced tough resistance at 6200 and we witnessed profit booking from there on. During the week Nifty opened below 6000 and corrected more than 100 points, every rise faced selling pressure indicating further weakness.

The weekly chart of the Sensex has taken support from its 20 week EMA. The 50 week EMA is rising. The major support is still intact. Everything pointing to a technically healthy bull market. Weekly technical indicators are showing some weakness, but remain bullish. The fall can be used as buying opportunity.

The daily chart of Nifty reflected what looked like H&S pattern but the necessary volume confirmation required, was missing all the time. In fact the entire correction seems to have ended forming a ‘Falling Wedge’ pattern which denotes an eventual upward breakout. This doesn’t mean that one should avoid the stop losses. Indicators are looking bearish and correction may continue.

Conclusion: Sensex and Nifty are correcting after touching 2 year highs. One can notice that 5850 is 50% Fib level of the recent rally from 5477 to 6229. One can also spot a gap between 5853-5844. Hence, this range becomes a crucial support zone for NIFTY Index.

A break below 5850 would initiate a fall up to 5700/5670. Overall the index will rise after the consolidation/correction is over. Use every correction to add to your positions.

Weekly Outlook of Nifty from May 20th - May 24th

During the week Nifty rallied exactly as predicted. Last week it was explained that ‘Chart patterns of Sensex and Nifty are on the verge of touching new 52 week highs, and may move up to touch life-time highs. The next resistance is at 6180 which seems tough to cross. Derivatives data confirms 6200 as a strong resistance for May 2013 F&O series. The highest OI for Call option is at 6200 strike price Calls. Therefore the possibility of crossing 6200 level in this series is very low. The MFLDX continues to be bullish and FII’s net positions in derivatives segment supports continuation of the current rally for some more time’.  What happened next? Nifty rallied to 6200 achieving the target of 6181 and it kissed 6199.95 for the week.

It is the 5th straight week of higher closes despite continuous selling by DIIs. Several chart patterns are visible in the weekly chart of Sensex.

First, the ‘diamond reversal’ that formed during Oct – Dec ‘10. It ended the previous bull phase that started from Mar ‘09. The horizontal line drawn from the right apex of the ‘diamond’ has acted as a resistance level for more than 2 years.

The bear phase that started after the break down below the ‘diamond’ and ended with an intra-week low of 15136 in Dec ‘11 actually turned out to be the first half of a bullish consolidation pattern known as a ‘cup and handle’.

The ‘handle’ formation appears to have completed, and the rally during the last 5 weeks is about to convincingly breach the resistance level of 20200. Upward target of the ‘cup and handle’ pattern is 25000. The next leg of the bull market that started in Mar ‘09 is ready to unfold.

Weekly technical indicators have turned bullish, but display negative divergences. Does that indicate a possible reversal of trend, or a more probable correction/consolidation near a previous top.

Nifty

The daily technical indicators are bullish and looking overbought. That doesn’t mean Nifty can’t move up higher. Rising volumes last week; after the break out above 5970 and a pullback - is a bullish sign.

However, the need for caution at a new high can’t be disregarded. So stay invested with a trailing stop-loss, or add stocks where you see compelling value.

Conclusion: Technically speaking, level 6181 is a “make or break” level as during January 2011 Index had made a high of 6181 and thereafter there was a fall of almost 1000 points without any halt. Considering the past history one can obviously expect huge profit booking at this point of 6181 level.

The Call option buildup at 6200 is still a resistance as no panic among Option Writers was witnessed to exit from this level. Therefore the best strategy is to wait and watch the Open Interest (OI) at 6200 strike price call option. The PCR (Put/Call Ratio) is at 1.43 which means it has still not reached overbought zone though Index has already reached near 6200 level. The MFLDX continues to be bullish and still no signs of divergence seen. Hence overall view still remains bullish. Therefore to conclude, if NIFTY Index is able to cross 6200 level convincingly in the coming week then NIFTY traders can once again take long positions with a target of around 6339. Chart patterns of Sensex and Nifty are about to board on new bull phases after touching 2 year highs. Don’t expect a one-way up move. Use corrections/consolidations as adding opportunities. Choose the best quality stocks, and maintain a stop-loss.

Weekly Outlook of Nifty from May 13th - May 17th

Sensex continued to rally towards 20000 after the break out above the triangle at 18450 and is now on the verge of touching a new 52 week high.  

Daily technical indicators are looking bullish, but overbought. The MACD is rising above its signal line, and has entered its overbought zone. The ROC formed a small head-and-shoulders reversal pattern inside its overbought zone, and has crossed below its 10 day MA; warning of a correction, or consolidation. The RSI and Slow stochastic are inside their respective overbought zones.

However, all four indicators are showing positive divergences by touching higher tops. Remember that a market can remain overbought for some time, so stay invested with a trailing stop-loss.

Nifty

The weekly chart pattern of Nifty had four straight weeks of higher closes but volumes have not been great. The 20 and 50 week EMAs are rising and the index is trading above them. A new 52 week high is pending.

The next resistance at 6180 seems to be a tough challenge now. This high was made during January 2011 and subsequently there was a fall of almost 1000 points without any pause. Thus, one can expect a huge profit booking as soon as Index reaches near 6180 level.

Conclusion: Chart patterns of Sensex and Nifty are on the verge of touching new 52 week highs, and may move up to touch life-time highs. The next resistance is at 6180 which seems tough to cross. Derivatives data confirms 6200 as a strong resistance for May 2013 F&O series. The highest OI for Call option is at 6200 strike price Calls. Therefore the possibility of crossing 6200 level in this series is very low. The MFLDX continues to be bullish and FII’s net positions in derivatives segment supports continuation of the current rally for some more time. But this indicator too is approaching its apex point where divergence is likely to begin.  Be selective. Pick fundamentally strong mid-cap and small-cap stocks, and do maintain a stop-loss. Trade cautiously as this is not the time for buying.

Weekly Outlook of Nifty from April 15th - April 19th

Last week it was mentioned that ' Sensex and Nifty have dropped near the gap area between 5526 and 5447 where one can accumulate longs with respective stop at 5400. What happened next - Nifty dropped till 5477 and bounced back sharply till 5611. The pull back lost charm after the Q4 announcement of Infy.

Hope of Bulls is sinking as Index once again closed below the 50 week EMA for the second week. The down trend in the Nifty continues. Support from the ‘gap’ area between 5526 and 5447 is protected so far.

The gap area is still open between 5447-5477. The 50% retracement level of 5440 is important as a convincing break can drag the Index further to 5321/5270.

Nifty 5500 Call added 7.5 lac fresh contracts in OI and 5500 Put decreased 6.4 lac contracts indicating fear around 5500. On Friday, Option writers were writing call options and winding up their positions from put options suggesting that Index may breach 5440 and may retrace to 5321 and 5270 in coming days.

Daily technical indicators are looking bearish, after correcting from oversold conditions. 

Nifty has spent a week below its 200 day EMA. The 20 day EMA has crossed below the 200 day EMA. The 50 day EMA is falling towards the 200 day EMA which are bearish signs.

Conclusion: Sensex and Nifty continue their down trends trading within a diagonal triangle pattern; break on either side will decide the further move. Volatility can be seen, till either side of triangle is not broken . However, till the upside triangle is not taken Bears are on the upper hand and Nifty will continue its down trend. Breach below 5440 can further extend the weakness to 5321/5270. 

Weekly Outlook of Nifty from April 8th - April 12th

Last week it was mentioned that “Index has received support from its respective long-term moving averages. Some more correction/consolidation is likely. However Index is in highly oversold state and any up move above 5700 can trigger to 5770/5863.” What next – Nifty gave a pullback till 5755 hardly manage to reach near 5770 thus failing to cross above 5770 finally dropped down to 5535 for the week.

Sensexx has dropped near the 'gap' area between 18050 and 18300. A bounce from the 'gap' area is a possibility. If the gap gets filled then the index is likely to bounce thereafter. Sensex is correcting its entire up move from 15135 to the top of 20203. Now, the 50% fib level of the up move is at 17669. keep an eye at the gap area if it gets filled then look for a support at 17669. Nevertheless any further fall or a close below this level should be considered as a change in trend.

The cues are mixed with no signs of strong momentum to get into a firm trend either way. Technical indicators are looking bearish and oversold. Positive divergences are seen so one can expect a bounce towards 200 DEMA.

 Nifty managed to close below the 200 day MA which usually acts as strong support/resistance. But on Thursday Index broke 200 DEMA and SMA with ease on a gap down opening placing a low of 5535 and closing below all the support lines which is certainly a sign of weakness indicating further fall.

There is a 'gap' area seen between 5526 and 5447, which was formed in Sept '12 and this should be looked upon as strong support. Generally it is observed that these open 'gaps' are filled. hence there is a high possibility that index will fall further till 5447 to fill the 'gap'. The fib level for the entire up move from 4531 to 6112 is about 5510 which is near the 'gap' area of 5526. However the 50% fib level is seen at 5321. Now, considering the top of 6338 formed in 2010 the fib level is at 5435. Nevertheless any further fall below the fib level of 5321 should be considered as change in trend. So if Nifty falls to 5450 one should unwind their shorts and focus on longs expecting a sharp pullback from these levels.

Conclusion: Sensex and Nifty have dropped near the 'gap' area formed in Sept '12. Index can bounce from these 'gaps'. However filling of the 'gap' is a possibilty. Keep an eye on 5526 and 5510 closely if breached it can fall further to 5447 where one can accumulate longs with stops respectively at 5400 and 5321.

Weekly Outlook of Nifty from April 1st - April 5th

Last week it was mentioned that “The technical indicators are bearish but positive divergences are seen. Hence one can see very limited downside and expect a pullback rally from 5600 level.” What happened next – Nifty placed a low for the week at 5604 and then we witnessed a pull-back finally closing at 5682.

On expiry day the Index traded in red during the first half of the day and suddenly spurted higher from 5600 level. However the 19000 level could not be regained, but the index managed to close above the long term moving average keeping the bull market alive.

Weekly technical indicators are looking bearish. The RSI has slipped below its 50% level. The ROC is dropping into negative territory, below its 10 week MA. The MACD is positive, but falling below its signal line. The Slow stochastic has dropped to the edge of its oversold zone.

Some more correction/consolidation can be expected. However, a big correction seems out of the way for now. Any further fall may get support from 18050/18300.

Nifty is once again back above its long-term moving average which will help the bulls to take the Index higher and further bounce will encourage the bears to sell.  Some more correction/consolidation is likely.

Conclusion: Index has received support from its respective long-term moving averages. Some more correction/consolidation is likely. However Index is in highly oversold state and any up move above 5700 can trigger to 5770/5863. Even if both indices fall further, it may not end the bull markets. Stays invested and accumulate fundamentally strong stocks that have been beaten down

Weekly Outlook of Nifty from March 25th - March 29th

Last to last week I had explained how the Index failed to meet the H&S pattern target and further explanation was given that “On Technical chart there is further upside if Index crosses the next resistance at 5972. The target above 5972 is near 6100. If the index touches new highs, then deeper corrections may follow and if down moves resume, the long-term moving averages may get breached. So stay cautious.” What happened next- Nifty failed to move past the right shoulder at 5972 with initial fall exactly getting arrested at the key resistance level placing a high at 5971.2 followed by sharp recovery to 5945 and finally loosing the steam for correction into 5631 breaching the long-term moving averages before closing the week at 5651.

The RBI announced a 25bps cut in repo rate which could hardly act as a positive trigger and then after the withdrawal of support from DMK shocked the market.  

Sensex crashed to the lower edge of the resistance zone between 19000 and 19800, but could not sustain inside the zone. By the end of the week, the index had fallen down to its 200 day EMA and is threatening to fall further.

Is this the end of the bull market? Not yet. Even if the index falls below its 200 day EMA, it is likely to receive support from the ‘gap’ between 18062 and 18284.

Daily technical indicators are looking bearish but positive divergences are seen. An upward bounce from the 200 day EMA is possible.

Conclusion: The Sensex and Nifty are hovering at their long-term moving averages. NIFTY index has achieved its first target near the support of 5620. Upcoming week is an expiry for F&O March 2013 series. Options buildup suggests that it is very improbable that Index can break 5600 level in this series. The PCR has almost reached to an oversold territory. The technical indicators are bearish but positive divergences are seen. Hence one can see very limited downside and expect a pullback rally from 5600 level. Remain cautiously optimistic. Accumulate good quality stocks that have been beaten down.

Weekly Outlook of Nifty from March 11th - March 15th

Last week it was explained that “Despite the highest daily volume on budget day the index didn’t fall below the rising 200 day EMA. NIFTY is very near to its 200 EMA which is at 5650 where one can find a small gap between 5649-5658. So a break below 5650, can we think of filling the gap all the way down till 5400 to fill the gap between 5447-5527. It was also mentioned that Sensex and Nifty have broken down below the ‘head-and-shoulders’ pattern. Nevertheless this is still a bull market correction as both indices are still trading above their long-term moving averages. But short side trading seems better than long side trading in current situation. However nifty is in oversold zone but not showing any signs of recovery till now.
For the week, watch 5550-5650, 5760/5820 with preference into lower end Strategic players can look forward to sell at 5760 and 5820 with tight stop at 5880.”

Index gave an early signal of confirming support at its 200 day EMA at 5650 on Monday and next day opened up with gap and closed the day with Bullish Marubozu candle. It bounced back from the low of 5663 and gave a stunning bounce back of 4% gaining 289 points in the week.

Last week it was observed that the Sensex had broken down below the ‘neck line’ of a H&S pattern, but had received good support from its long term moving average. Head-and-shoulders patterns have measuring implications. The Sensex was expected to drop till 18400 a little below the level of the 200 day EMA.

During last week’s trading, the Sensex started a pullback towards the ‘neck line’ of the H&S pattern. Such pullbacks actually provide selling opportunities but the pullback continued above the ‘neck line’ and negated the reversal pattern. Now what to do for such pattern failure – one should keep a stop at the level of ‘right shoulder’. Now has the Sensex crossed the ‘right shoulder’ the answer is NO. It has just reached near it. So if it crosses and closes above then a further up move can be expected for a new high or else it may drop below the 200 EMA and try to fill the gap.

Nevertheless a drop below the 200 day EMA may be bullish. It will meet the downside target of the H&S pattern and may even fill the ‘gap’ in the chart strengthening the technical health for a stronger up move.

Nifty quickly got out of weakness to a strong rally from 5663 posting a strong weekly close at 5945. The trigger for the rally was from combination of bullish cues from external sector and build-up of RBI’s shift of prioritisation from inflation to growth.

Nifty failed to meet the reversal target of H&S pattern at 5550. Good support from the 200 EMA prevented further fall and helped in breaching the ‘neck line’ of H&S. However the falling volume for the up move raises questions.  The bulls still have to pull above the high at 6111 to maintain a comfort zone.

Conclusion: The index has pulled back after breaking down below the H&S patterns. On Technical chart there is further upside if Index crosses the next resistance at 5972. The target above 5972 is near 6100. The Options data suggests that Index will continue rising further as Option writers are unwinding their positions from Call options and writing Put options heavily. If the index touches new highs, then deeper corrections may follow and if down moves resume, the long-term moving averages may get breached. So stay cautious.