BREATH OF HOPE

Dear Investors

Market continued its fall till Thursday,on the background of ADAG News , CBI arrest of DB Realty’s Managing Director Shahid Balwa for his alleged role in the 2G spectrum scandal , this dampened the sentiments. Worries about high inflation and rising interest rates and fears of slowdown in corporate profits due to rising cost pressures also weighed on the markets. Hit by scams and foreign institutional investor (FII) outflows, the key benchmark indices touched the eight-month lows during the week.

On Friday markets bounced back due to

·        Economy seen growing at 8.6% in FY11

·        Food inflation eases to 13.07% versus 17.05%

·        Direct tax kitty up 20% in April-January FY11

·        December IIP at 1.6% versus 2.7%

Also some amount of ‘Short covering’ and ‘Bottom Fishing’ by long term investors in view of the ‘steep and speedy’ fall in stock prices
    

During the week, the Nifty slipped below 5200 levels, however after taking support at 5177 Nifty managed to close above that mark. The Sensex swung 885 points and the Nifty 263 points during the week. To close the week, the Sensex settled at 17729, up by 266 points and the Nifty at 5310, up by 84 points.

What Next

PART ONE: Next Week

Nifty touched near to the expected level of 5180. And did a smart pull back, which I had already mentioned in last Blog, but is it an indication that the downside is over? In my opinion it is not. Then what do I expect next week?  Technically, as you can see, NIFTY is almost systematically adhering to a range or channel. Hence I expect nifty to touch approximately, 5410/5449 level, which is the top of the channel. However, if Nifty fails to sustain above this top, then we might see a sharper fall in the second half of the next week. The support of which is at 5220/ 5180/5060 slopping line

The movements of market during next few days are critical in deciding the trajectory of the Nifty in medium term period, sustained recovery from current level of 5330 will take nifty to 5380/ 5420 levels, if the recovery does not get strength beyond 5380, then,

 as the decline during last few weeks was very sharp and sever, selling pressure is

 likely to create pressure at every rise keeping markets ‘Under Clouds’. Till

 Nifty moves above 5628 the continued bearish mood will persist

So traders and investors are supposed to be careful in creating and carrying

 Positions on, either side. There is every likely hood of ‘Increased Volatility’

As indicated in last Blog , Nifty got support at 5180(Low was 5177) to

 bounce back from there to first resistance at 5330(close at 5310). Coming

week will confirm whether Friday’s pull back was due to ‘Short Covering’

or because of some ‘Genuine’ buying. The next immediate resistance is at 5380,

 if crossed then the rally can extend up to 5410/5440 levels. Reversal from this

 can take Nifty to the support at5220/ 5180 /5060 during next few days

Technical View

To follow short term technical view one has to think of the movement of

 the Nifty during last correction, Nifty after scaling 5557 corrected to the

levels of 5177.To know the next support and resistance levels in a short period,

 one has to get the ‘Retracement Levels’ of this fall( from 5557 to 5177), which

 are as follows

23.6%     5267(Closed above this on Friday)

38.2%:   5322(On Monday it should be crossed)

50%:      5367 (Next Important resistance)

61.8%:   5412(Above this reversal is likely)

78.6%:   5476(Any close above this will be

                       A medium term trend changer)


( Retracement 


A term used in technical analysis that refers to the likelihood that a stock price will retrace a large portion of an original move and find support or resistance at the key  levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
 Retracement is a very popular tool used by many technical traders to help identify strategic places for transactions to be placed, target prices or stop losses. )(This is given for all my non technical friends.)

Close above 5557 will give continuation of the original up trend,

 Indicating formation of ‘Higher Top and Higher Bottom’

In coming week

Nifty Resistance is at: 5380/5415/5572

Nifty support is at:     5267/5180/5120

If Nifty breaks below 5177 then the down trend will resume which may take Nifty towards new lower levels of 5060/4880

COMMENTS

Earnings season will come to an end next week, with the major companies like Hindalco Industries, Reliance Capital, Reliance Infrastructure, Reliance Power, Reliance Communications, Tata Power, Coal India, Unitech and Tata Steel declaring their results. Further probe in 2G spectrum scam may impact the markets. On the macro front, markets will keep an eye on inflation numbers in coming months of 2011. Developments across the world and FIIs activity and budgetary discussions, allocation and capex etc. may also set the course for the markets in next few trading sessions 

PART TWO:MONDAY 

Markets are likely to open in upward direction on the background of developments in EGYPT; Results of certain industrial majors will carry impact on the days trading,

While some profit booking, at the end of the day might lead to volatility. If Nifty sustains the Friday’s close and adds to the gains to close above 5380 next day will be crucial for the markets.

Technical View

PIVOT FOR NIFTY: 5268

R1 (First Resistance) is @ 5360

R2 (Second resistance) is @ 5410

R3 (Third resistance ) is @ 5502

Significance

R1(5360) will be most crucial level to be watched, if Nifty sustains this then there is every chance that Nifty will move towards further resistance levels. If not then the close below Friday will continue the downward correction

Traders should maintain long positions as long as Nifty is above 5300 and add to it with stop loss at 5268(Nifty Pivot)

S1 (First support) is @ 5218

S2 (Second support) is @ 5126

S3 (Third support) is @ 5076

Significance

S1( 5218) is far below the Nifty Pivot, if violated the medium term trend of Nifty changes to ‘Down’. Break below S1 should be used to go aggressively short with a stop loss at  5300

Close below 5200/ 5177(Friday’s low) will take Nifty to next round of ‘Down Fall’

Which will be 5060

Traders should go short if Nifty breaks 5200 with a stop at 5060.

5218/5268 SHOULD BE ‘a NO MAN’S LAND’ ZONE

VXI (Volatility Index)

Pivot Is At: 23.39

Significance

VXI Pivot is nearing the resistance level of 24 indicating a chance of ‘High Volatility’

And wield swings during the day.

DMAs(Day Moving Averages)

5DMA:5300

20DMA:5523

50DMA:5787

200DMA:5628

Nifty is trading above 5DMA after a long period indicating a short term reversal of the trend., to establish this for medium term Nifty has to cross 20DMA(5523)

Close above 200DMA will mean that the on going ‘Correction’ was part and parcel of the long term ‘Bull Market’

COMMENTS

Friday’s close has created hopes for a change in the direction of the market. Traders can take Long Positions till 5300 is held.

Bears should continue with shorts till 5410 beyond which start covering if Nifty tests 5440 and close above.

In vestment buying is adviced  above 5410 or below 5060. If 5060 is not sustained on

Closing basis all positions must be surrenderd till exact trend is established. Below 5060

Market will have support at 4880.

Impressions

First half of the week will good for long traders while profit booking will help Bears to add to the positions in second half of the week.

5410/5440 CAN BE ACHIEVED DURING NEXT FEW SESSIONS

Stock Specifics

Traders

Trade with stop loss in some of the sticks

Kotak Mahindra Bank

ICICI Bank

YESBank

UCO Bank (96)

RIL(915)

Sterlite(160)

Hindalco(218)

ITC (158)

HUL (272)

M&M (660)

Praj Ind. (67)

Artson Eng. (50)

Graphite India (86)

Celestial Lab. (23)

Arvind (54)

Ahalcon Parenterals(51)

HDIL (135)

Indiabul Real

Tilaknagar Ind.(51)

Essar Shipping (86)

SHORT TERM POSITIONS CAN BE TAKEN IN ALL THESE STOCKS

With a ‘Stop Loss’ at 5180 level of Nifty.Book profits at and around 5440

Thanks

Dr. Vasant Bele

All the views are personal  Invest after consulting experts.