Gemstone Equity Research & Advisory Services

Thursday, February 2, 2017

Daily Market Trend Guide -- Thursday, February 02, 2017

MARKET OUTLOOK FOR THURSDAY, FEBRUARY 02, 2017

After the first half of the trading session remaining heavily range bound, the Markets gave an thumbs-up to the Union Budget and went on to end the day with a robust gain of 1550.10 points or 1.81%. The Budget was perceived from neutral to positive by the Markets. Some important points remained giving infra status to the affordable housing, lowering of personal income tax rate, not flirting with the Long Term Capital Gains in the financial markets, increasing allocations that would benefit housing, infrastructure, rural spending, etc. We will now need to approach Markets from a different perspective. We expect a stable opening today and there is no doubt that buoyancy will continue to persist but in the second half of the session, we will have to remain cautious as there can be some possible profit taking and also the fact that the NIFTY50 once again trade in overbought zone. The euphoria now needs to be approached with positive caution.

For today, the levels of 8745 and 8785 will remain resistance levels for the Markets. The supports come in much lower at 8665 and 8565 levels.

The Relative Strength Index – RSI on the Daily Chart stands at 71.9273 and it shows no failure swings. It now trades in “overbought” territory and also shows Bearish Divergence as NIFTY has formed a fresh 14-day high while RSI has not. The Daily MACD stays bullish trading above its signal line. On the Candles, a big white candle has been formed. It is important to note that NO formations like Engulfing Candles have been observed which otherwise holds possibility of halting any uptrend.

The NIFTY February futures have added over 14.13 lakh shares or 7.27% in Open Interest which is quite buoyant indication.

While having a look at pattern analysis, two things are quite evident. First, the overall trend and underlying buoyancy continue to remain absolutely intact. On the other hand, the NIFTY is tracking the upper band of the Bollinger Band. Though this shows buoyancy, the overbought nature of the Markets may cause some consolidation to occur at higher levels. Therefore, a euphoric reaction may continue to persist and the trend may remain originally intact, but some minor profit taking and shallow correction cannot be ruled out.

Overall, it would be time that one uses the up moves to protect profits in the existing investments. Some structural changes and sectoral moves will be observed and some sector rotation will remain evident. We advice not to euphorically chase the up move but instead use any available opportunity to book profits at higher levels. Consolidation is expected and this should be effectively used to make fresh select purchases.

(Milan Vaishnav, CMT, is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)

Milan Vaishnav, CMT

Technical Analyst

(Research Analyst, SEBI Reg. No. INH000003341)

Member:

Market Technicians Association, (MTA), USA

Canadian Society of Technical Analysts, (CSTA), CANADA

www.EquityResearch.asia

http://milan-vaishnav.blogspot.com

+91-98250-16331

milan.vaishnav@equityresearch.asia

milanvaishnav@yahoo.com

Daily Market Trend Guide -- Wednesday, February 01, 2017

MARKET OUTLOOK FOR WEDNESDAY, FEBRUARY 01, 2017

Profit taking finally emerged from higher levels perfectly on analyzed lines as the Markets chose to go into Union Budget on a cautionary note. The benchmark NIFTY50 ended near the low point of the day posting net loss of 71.45 points or 0.83%. Today as we face the Union Budget, it is more than obvious that we will be encountered with large amount of volatility. Though the NIFTY has ended near the pattern supports, technical levels will be seen violated on either side today. We expect a range bound trade in the morning and we will see the Markets reacting once the proposals start rolling in.

Broadly speaking, the levels of 8672-8700 have now become an immediate top and therefore resistance levels for the Markets. The supports come in at 8500 and 8415 levels.

The Relative Strength Index on the Daily Chart is 64.9035 and it remains neutral showing no divergence. It has just crossed below from a topping formation which is Bearish. The Daily MACD remains bullish trading above its signal line but it has flattened its trajectory. A black body on Candles occurring near the resistance / topping area has established credibility of the resistance zone of 8670-8700 levels.

The NIFTY February series have seen shedding of 4.92 lakh shares or 2.47% in Open Interest. This makes some profit taking evident from the higher levels.

Let us now have a look at pattern analysis. As mentioned of ten, the NIFTY has risen close to 10% in less than a month. The overbought nature of the Markets made some corrective moves imminent. If we discount the Union Budget, and if the NIFTY still continues to correct, it would not be making any damaging move on the Charts. The correction would remain perfectly healthy, normal and on expected lines. However, given the Union Budget, we will see some good amount of volatility in the session. Any downsides up to the levels of 100-DMA will not create or cause any structural damage on the Charts. Upsides will face immediate resistance at 8670-8700 zones.

Importantly, it is important to note that all macro economic factors remain very much in place. The liquidity conditions, in fact, have improved post demonetization as the banks have now become flushed with funds. Liquidity was never a problem in 2016 and it is not expected to remain a problem in 2017 as well. Also, the Markets will also closely watch the issue of Long Term Capital Gains – LTCG which is likely to be flirted with. It would be positive if LTCG are left in its present condition with no change. Any change such as introduction of LTCG up to 5% or any proposal to increase of lock-in tenure from present 1 year to more will invite negative reactions in the Markets.

We point out at this juncture that technical levels will be violated on either side because of volatile reactions that are normally witnessed. It is advised to remain absolutely light and refrain from creating any serious exposure until a directional bias is established and the Union Budget is fully digested.