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.

Weekly outlook of Nifty from March 4th - March 8th

Last week it was explained that “On the chart one can notice an H&S formation with Neckline at around 5800 level suggesting Nifty at critical support line. So, technically speaking one must stay alert if Index breaks this critical support of 5800. Nifty 6000 call has highest open interest suggesting upper boundary for near term.

In fact if Index reaches around this level then it will be a shorting opportunity for NIFTY traders. For the week, watch 5800-5975 consideration to higher end, but not ruling out extended weakness into 5750 for set up of strong post-budget rally.

All together I was expecting some bounce before NIFTY index could crash but it did not happen as the H&S patterns neckline was seen near 5817. In fact Nifty opened the week at 5870 and broke the critical technical support line at 5800 on Tuesday itself. NIFTY fell sharply from high of 5878 into 5672 before closing the week at 5719. The inability to take out 5880 for sharp reversal below 5750-5800 highlights a strong near term bearish momentum.

Sensex broke downwards from a ‘head-and-shoulders’ pattern with the ‘head’ at the upper edge of the upward-sloping channel; the left and right ‘shoulders’ and the  ‘neck line’ formed within the resistance zone between 19000 and 19800.

The damage had the weekly bar drop below the 20 week EMA and the 19000 level. However the height of the ‘head’ above the ‘neck line’ is about 900 points. So, the downward target below the ‘neck line’ should be 900 points. That means a downward target of about 18400, which is slightly below the current level of the 50 week EMA.

Now the question is can the Sensex fall further towards the lower edge of the channel? The possibility can’t be ruled out. However, there is a ‘gap’ between 18000 and 18200 on the daily chart which should provide support in case Sensex falls below 18400.

The daily chart of Nifty clearly shows the break down below the ‘head-and-shoulders’ pattern. The height of the ‘head’ above the ‘neck line’ is about 290 points. The downward target below the ‘neck line’ is also 290 points giving a target of about 5548 below the current level of the 200 day EMA. Despite the highest daily volume on budget day the index didn’t fall below the rising 200 day EMA.

Daily technical indicators are looking bearish and oversold. All four indicators showed negative divergences by touching lower tops while the index rose higher. 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. Well the possibilities can’t be ruled out so keep a close watch on 5550/5520.

Conclusion: 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 for 5550-5565 for extended weakness below 5550 into 5400.