Wednesday, February 1, 2012

Daily Market Trend Guide -- Wednesday, February 01, 2012

MARKET TREND FOR TODAY                                                    February 01, 2012
The Markets saw a very sharp pullback rally despite falling from overbought levels on Monday and it again closed with robust gains, near its important resistance, though on litter lower volumes. The Markets opened on a positive note and remained so throughout the session as it went on to give its intraday high of 5215.40 and ended the day at 5199.25 posting a robust gain of 111.95 points or 2.20%. In the process, the Markets have formed a higher top and higher bottom on the Daily High Low Charts. The Markets have ended the Month with gains of nearly 600+ points.

For today, expect the Markets to open and start on a flat note and look for directions. The intraday trajectory would be extremely important to see if the Markets continues with it s up move or consolidate / corrects as it has closed near its important resistances. For today, the levels of 5225 and 5240 shall act as resistance and the levels of 5145 and 5090 shall act as supports.

The RSI—Relative Strength Index on the Daily Chart is 68.2339 and is neutral as it shows no negative divergences or failure swings. The RSI has been just short of giving a Bearish divergence as yesterday’s intraday high just fell short of 2-odd points from the high of January 27th. The Daily MACD continues to trade above its signal line.

Having said this, it is also important to note that the Markets have closed near its very important resistances. The first on is 200-DMA which is 5198 today. The second one is the falling trend line, a pattern resistance which is drawn joining tops since its lifetime highs of 6388. The credibility of these resistances remain because of the facts that the Markets would again get “overbought” with some rise again as it just escaped giving negative /  bearish divergence yesterday.

To add to this, more than half of NIFTY components have shown decrease in Open Interest with yesterday’s rise, signifying more of the short covering rather than buying.
To conclude, even though the Markets show some continuation of up move, it is making it unhealthy. Even though it remains liquidity driven, such unabated rise makes it unhealthy and equally prone to sharp correction. We strongly continue to sound caution at these levels and advice to remain highly selective in buying and vigilantly protect profits at higher levels. Overall, cautious outlook is advised for today.

Milan Vaishnav,
Consulting Technical Analyst,
+91-98250-16331


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