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A SPECIAL NOTE – DAILY MARKET TREND GUIDE – FRIDAY, MAY 06,, 2011
The day when the Markets were expected to stabilize, the Markets openedpositive but traded in a very capped range for almost late afternoon trade. Just when it seemed that we may have a range bound directionless day, weakness crept in again and the Markets saw a sudden unexpected wave of weakness again and closed with losses on the 9th straight day to close at 5459.85.
We draw attention to few points at this juncture.
As mentioned in our previous editions of Daily Market Trend Guide, the Markets have completely disregarded major pattern supports, and all of its DMAs as if they have never existed before. The Markets (NIFTY) has fallen 424.85 points or 7.44% in last 9 sessions out of which over 50% (241.45 points or 4.29%)came in last three sessions when the Markets were anyway below its DMAs and had given a potential bottoming out signs.
It is important to note that the relentless selling and thereby underperformance that we have been seeing tends to continue sometimes which is beyond any technicals and therefore, all lead indicators but at a time, technicals finally takes over. In between these time, there is little that an analyst, whether technical or fundamental can do if the Markets behaves as if there are no patterns, no pattern supports, no DMAs, etc.
So far as today is concerned, it is grossly overdue that we see some respite from the weakness that we have been seeing in last 9 sessions. The Markets are expected to open on a positive note today. The negatives in global markets may not effect much as we have anyway grossly underperformed as compared to them.
Following positive opening, it would be critically important for the Markets not to trade in directionless manner as it did yesterday until late afternoon trade. It would be critically important for the Markets to remain in rising trajectory to capitalize on positive opening that it is likely to get today. The levels of 5510 and 5575 are immediate resistance and the levels of 5350 is the immediate support on the Charts.
However, all lead indicators are now Oversold. The RSI—Relative Strength Index on Daily Chart is 29.5024 which is OVERSOLD. It gives no negative divergence. On the Candles, there is a potential sign of Markets bottoming out today, however it needs confirmation in form of a higher bottom today.
Also, NIFTY PCR has dropped below 0.80 which also is OVERSOLD.
Given the fact thatthe Markets have fallen 424 points in last 9 sessions it just now remains a matter of time before it give a technical pullback, which is long and grossly overdue, especially given the facts that all indicators now point towards Markets being OVERSOLD.
It is again continued to be advised to refrain from shorting and selective fresh purchases may be made. The Markets have shown all the signs of some stability and a possibility of a pullback. Positive caution is advised for today.
The Markets yesterday traded with capped losses on expected lines and did not sustain an attempt to pullback on lack of participation and ended the day with moderate losses on the seventh straight day and in the process have continued to form a lower top and lower bottom on the Daily High Low Charts.
Today is going to be no different and the overall analysis for today shall remain more or less same as that of tomorrow.
For today, once again expect the Markets to open on a mildly negative note and in case of weaker opening, it would be essential for the Markets not to keep making lows intraday and remain in positive territory even if it trades in a capped range. For today, the levels of 5575 and 5650 shall act as resistance and the levels of 5505 and 5480 shall act as supports.
The RSI—Relative Strength Index on the Daily Chart is 35.3188 which has reached its lowest value in last 14-days which is bearish. However, today also, it does not show any negative divergence. The Daily MACD continues to trade below its signal line.
There are very faint signals of the lead indicators attempting to improve. The Markets have shed over 350 points in last 7 straight sessions while continuing to add Open Interest which evidently signifies heavy creation of short positions. Also, the premium on the NIFTY Futures have narrowed from as high as 24 points to just 2 points pointing once again towards heavy shorts. The NIFTY PCR also has dropped below 1 to 0.97 which is racing towards OVERSOLD range.
All and all, it is necessary for the Markets to at least trade in range and preferably in positive rising trajectory to avoid weakness. With heavy shorts in the system, short covering is imminent and can occur any time. Using dips to make selective purchases while strictly avoiding shorts, positive optimism is advised for today.
The Markets yesterday reacted violently, and in fact more than necessary to the RBI’s announcements of hike of 50 BPS of repo and reverse repo rate and NIFTY lost over 130 points from its day’s high to close near the low point of the daybreaching important technical support levels of 5600 to close at 5565.25 and in the process have formed a sharply lower top and lower bottom on the Daily High Low Charts.
Today, expected the Markets to open on a flat to mildly negative note and look for directions. It is expected to trade with capped losses in the very narrow range in the initial trade but overall it is high time, both technically and statistically, that we see some respite from the continuing weakness that we are seeing.
With the Markets expected to open on a flat to mildly negative note, the levels of 5638 and 5690 are immediate resistance levels and the levels of 5530 and 5510 are expected to act as support. The RSI—Relative Strength Index on the Daily Chart is 36.7626 and it has reached its lowest value in last 14-days which is bearish. However, it does not show any failure swing. The Daily MACD continues to trade below its signal line.
At this point, it is important to take a judicious note of few things. First of all, NIFTY has saw asteady decline of over 325 points in last couple of sessions and this has sent the Markets very near to OVERSOLD range. Along with this, this fall has come with massive addition of Open Interest in both NIFTY and Stock futures. So was the case yesterday as NIFTY Futures added over 17% in Open Interest. Given this reading, even if we remain in overall downtrend, a technical pullback is almost imminent and is LONG OVERDUE.
Secondly, reaction to RBI’s action is not judicious as, what RBI did, i.e. rising rates by 50 Bps as against widely expected 25 Bps should be in fact be seen as direct and aggressive attack on inflation. Taming of inflation is only the long term robust remedy to sustain “healthy” growth in the long term. The revised estimates of GDP growth has not been significantly lowered at 8%.It is obvious that RBI’s stance would continue to that of rolling back fiscal stimulus (lowering of rates) thatit gave to support growth in times of global slowdown and it is doing no sin if it is rolling it back to tame inflation, which is becoming cancerous and dangerous in the long term health of economy. The worry that rise in savings interest rates by 0.5% will make the funds costlier is almost discounted incurrent prices now as all the components of BANKNIFTY are almost OVERSOLD.
Thus, it is all important to view this developments in overall judicious manner. No growth remains a healthy growth with uncontrolled and sustained inflation.
To sum up, all the developments that we have had in last couple of days, have been more or less discounted in the current prices. The Markets are seeing artificial pressure as it totally disregarded its important Pattern Support levels as well as other important supports like its DMAs.
All and all, it would be important for the Markets to move past the levels of 5600 again to avoid any further weakness. It is IMPORTANT to take note that any weakness today shall make the Markets OVERSOLD. It is strongly advised to refrain from taking any short positions as it is just a matter of time that we shall see a technical pullback, even if we remain in overall downtrend. From today onwards, any weakness that persists should be seen as an opportunity to make selective fresh purchases.
With the Markets seeing massive addition of short positions which is evident with heavy addition of Open Interest with the fall of over 325 points, a point of reversal in imminent in the Markets. Thus, acautious approach with positive optimism is advised for today.
The Markets yesterday, as mentioned, failed to capitalize on positive opening and positive cues as tentativeness weighed high and the Markets closed with losses in yet another session forming a lower top and lower bottom on the Daily High Low Charts.
Today’s session would be an all important session for the Markets that would not only decide today's trend but could well affect the trend in the short term.
All eyes and reaction would be on the RBI’s Monetary policy announcements today. For today, expect the Markets to open on a flat to mildly negative note and look for directions. Formation of positive rising intraday trajectory would be essential for the Markets to avoid any further weakness. For today, the levels of 5740 and 5775 shall act as resistance and the levels of 5680 and 5645 shall act as supports. The RSI—Relative Strength Index on the Daily Chart is 45.0400 and it has reached its lowest value in last 14-days which is bearish. However, it does not show any negative divergence today. The Daily MACD continues to trade below its signal line and is not in overbought or oversold range.
Today, overall expectations are of 25 bps rate hike in both repo as well as reverse repo rates which some believing it to be 50 bps. The CRR and SLR are expected to remain untouched. The Markets have shown massive addition of short positions with adding of massive Open Interest and falling of premium in last 2-3 sessions. Also, at Close, it has taken support at its 100-DMA.
All and all, even with weaker opening and some weakness persisting in the early session, it is again very strongly advised to refrain from creating any shorts. There arebright chances that Markets may react violently to RBI’s announcements but some improvement is form for technical rebound cannot be ruled out.. Stock specific approach with positive caution is advised for today.
As mentioned, the Markets failed to capitalize on the positive opening on Friday, as after trading in a capped range, the Market slipped and ended the day with losses after a brief recovery at the end and in the processhave continued to form a lower top and lower bottom on the Daily High Low Charts.
For today, expect the Markets to open positive and trade in positive at least in the initial trade. With the Markets expected to open on a positive note, a technical rebound is likely and this it would be further aided if the Markets remains in rising trajectory. For today, the levels of 5885 5785 and 5830 shall act as resistance and the levels of 5700 is likely to act as support for the Markets. The lead indicators continue to present a mixed picture but with a bias of upside now.
The RSI—Relative Strength Index on the Daily Chart is 48.6431 and it has reached lowest value in last 14-days which is bearish. Also, RSI has given a new 14-period low on daily charts which is a bearish Divergence. The Daily MACD continue to trade below its signal line.
However, on the Weekly Charts, the RSI is 52.0704 and is neutral as it does not show any negative divergence or any failure swings. The Weekly MACD has given a BUY signal as it trades above its signal line.Further to this, it is important to note that with the Friday’s decline in the Markets the NIFTY Futures premium has fallen drastically and it has added massive 10..99% in Open Interest which indicates heavy shorts in the system. Also, the Markets took intraday support on its 100-DMA and has taken support at 200-DMA at Close. All and all, it is advised not to short in such markets as technical rebound is very much likely. There are bright chances that even with some weakness, at least short covering may be seen anytime. However some tentative approach may be seen ahead of announcement of RBI Credit Policy is likely but short may strictly be avoided.