Last week it was clearly mentioned;
“I would say that we are now very near to the
upper target of the current rally and one needs to be very cautious. Index has
sustained and closed above 5630 level so it cannot be denied that it may move
further to the next target of 5900/5940.
On Friday, Nifty formed “Shooting Star” candlestick at the intermediate
resistance line near 5740. Level 5630 is very critical support and should
remain protected on closing basis for this rally to continue”. One
more thing was been said repeatedly that “The zone between 19132
and 19750 is a long-term support/resistance zone. Also, the index is looking
overbought as it is trading far above its 200 day EMA”. During the week NIFTY index made another new
high of 5815 but started dropping from there and the SENSEX placed a high at 19137 right at the resistance zone mentioned at 19132.
Friday morning market
responded with gap up opening but came under profit booking pressure and day
closed at 5747 with ‘Bearish Engulfing candlestick’ on technical chart signalling
threat. A
‘flash crash’ in the Nifty that was being approved by NSE authorities as an
‘error’ made at a brokerage terminal. If an ‘error’ can cause the Nifty to drop
by 900 points within seconds, then NSE authorities should take the blame for
having ineffective software systems. The way high-value shares were picked up
quickly at much lower prices smells of a well-executed scam.
The
Sensex rose above its Feb ‘12 top forming a bullish pattern of higher bottoms
and higher tops. The 20 week EMA crossed above the 50 week EMA, technically
confirming a return to a bull market. The more immediate worry is the nearness
of a strong resistance zone between 19132 and 19750 and the pain is SENSEX has placed the high at 19137 (which I have been mentioning in the past 2/3
posts). This resistance zone has to be crossed if the bulls want to regain
control.
Weekly
technical indicators are bullish, but looking overbought. The MACD is rising
above its signal line in positive territory. The ROC is positive and moving above
its rising 10 week MA. The RSI and Slow Stochastic are both inside their
overbought zones, but touched lower tops while the index rose higher. A
correction/consolidation may be around the corner.
Now,
taking the ‘flash crash’ into consideration Nifty’s uptrend has ended as the
index dropped below its Jul ‘12 and Aug ‘12 lows, and all three EMAs. Even the
longer-term uptrend line connecting the Dec ‘11 and Jun ‘12 bottoms was
breached on intra-day basis. However the yearly daily closing chart of the
Nifty is obviously still in an uptrend.
Considering
an index falling a huge amount within a fraction of time, whether due to an
‘error’ or a ‘scam’, it is better to remain cautious as this happened when the
Nifty had briefly entered a strong resistance zone between 5740 and 5940 and
the Sensex at 19132-19750 zones. The close just below the resistance zone on
Friday may lead to some profit booking in the coming weeks.
Nifty
touched a new high, but all four technical indicators are showing negative
divergences by failing to touch new highs. However, all four indicators are
still bullish, so any correction is unlikely to be steep. Support can be
expected from 5630 and the 20 day EMA at 5600.
Conclusion: Chart patterns of Sensex
and Nifty are in bull markets, but needs to cross above the strong resistance
zones. 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.
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