Last week it was mentioned that “Both Sensex and Nifty
are likely to correct or consolidate before bulls could cross the Nov ‘10 top.
One can use dips to enter, but maintain stop-losses. The derivative data suggests the upper side of the market
for October series has been capped at 5800. This is a negative signal for the
coming week. The Put/Call Ratio dropped to 1.13 suggesting that Bulls have
slightly lost their control. So we can expect market entering into some
corrective mode in the near term. Consider 5630/5600 as a critical support
level for NIFTY index and a break below can trigger a fall up to the gap of
5450".
During the week NIFTY Index made a low of 5637 which was exactly 7 points
above the support of 5630. It was a phase of
profit-booking driving NIFTY down from below set near term objective at 5830
(high of 5815) to strong short term support at 5630 (low of 5637) before
closing the week at 5676. This 200 point correction (as counter trend move) is
seen as good post 1000 point rally from 4770 since first week of June. In fact NIFTY Index tried multiple attempts to
breach the level of 5630 on Thursday’s trading session but finally managed to hold
and close above this level for the week.
So far, the correction has received
good support from the 20 day EMA. The inflation has moderated a bit, but
remains high. The IIP number was better than expected, but worse on a YoY basis however this could not bring any cheer to the
market and Index kept on falling but managed to close the week above the
support channel at 5676.
The
weekly closing chart of Nifty Index has turned down after hitting the strong
resistance zone between 5750 and 5950. This was expected, and is good for the
long-term technical chart. A drop towards the support channels will correct the
overbought condition, and prepare the grounds for an attempt to cross the
resistance zone.
Weekly
technical indicators are weakening, but haven’t turned bearish yet. The MACD is
positive and above its signal line. The ROC is also positive, but falling
towards its 10 week MA. The RSI has slipped from its overbought zone. The Slow
stochastic is still inside its overbought zone.
Both
the 20 week and 50 week EMAs are moving up and the Nifty is trading well above
them. There is no immediate threat to the bull market, and the dip towards the
uptrend line may be used to enter.
FII flows which drove the market up from 5200 to
5800, post QE3 and domestic reforms are seen to be in wait-and-watch mode till
current correction process is out of the way. It would need combination of
off-shore and domestic investors to drive NIFTY above 5830 into set short term
target at 6198/6322. The major trigger for this move will be on Parliamentary
approval, rate cut from RBI and confirmation of rupee bullish trend into 50-51.
Conclusion: In the
technical chart, Index has managed to hold above the support price channel but
is now under profit booking pressure. The corrections may last a bit longer but
will help the bulls to gather some strength to overcome the resistance zones. Select
and choose stocks that declare improved Q2 results.
The possibility for the coming week still
remains bearish as PCR (Put/Call Ratio) has now dropped below 1.0 this week. Consider 5630/5600 as a critical support level for NIFTY
index and a break below can trigger a fall up to the gap of 5450.
For Investments: Let us now watch strong short term support zone at 5630-5580 and
near term resistance at 5760-5830. The strategy is to build on to “longs” near 5630
and add at 5580 if seen for near term objective at 5800-5830. Beyond,
RBI’s shift into growth supportive monetary stance and dilution in sovereign
rating downgrade risk will trigger extended gains beyond 5830 into 5950/6177/6322.
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