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Thursday, May 16, 2013

Daily Market Trend Guide -- Thursday, May 16, 2013

MARKET TREND FOR TODAY May 16, 2013

Influx of liquidity driven by lower WPI inflation drove the Markets to its 28-month high yesterday in a robust session as it ended the day with strong gains though with a bearish divergence on the Daily Charts. The Markets opened on a positive note and after briefly trading with capped gains inched up further and went on to give the day’s high of 6157.10. The Markets remained in a one way rising trajectory and showed no signs of giving up during the entire session. The strength remained intact throughout the session. The Markets ended the day at 6146.75, posting a robust gain of 151.35 points or 2.52% and formed a sharply higher top and higher bottom on the Daily High Low Charts.

Today would be critical session in the Markets. The Markets are likely to open on a flat note and look for directions. There is a bearish divergence reported on daily charts and there are high chances that the Markets see some technical correction. Any continuation of up move in this fashion would make the sustainability under question and shall have all the ingredients to get trapped at higher levels. Intraday trajectory would be crucial for this.

For today, the levels of 6165 and 6180 shall act as immediate resistance on the charts. The supports come in much lower at 6090 and 6035 levels.

The lead indicators show very clear signs of weariness on the Charts. The RSI—Relative Strength Index on the Daily Chart is 66.5845 and though it does not show any failure swing, NIFTY has reached its 14-day high while the RSI has not and this is clear BEARISH DIVERGENCE. The Daily MACD continues to trade above its signal line.

On the derivative front, the NIFTY May futures have added over 25.48 lakh shares or 11.31% in Open Interest. The NIFTY PCR has inched up to 1.25 as against 1.19.

Now, a word of great caution. It is very rare to observe that even with such robust gain in the Markets, the lead indicator, RSI, which is one of the most effective and important lead indicator, has just inched up very little. This has lead to indicator showing a bearish divergence on the Charts. Under such circumstances, as we have been mentioning in our previous editions, the Markets do tend to move up a bit but the sustainability is always a question. Such rise is not only dangerous but equally unhealthy and has all the chances that anyone making blind aggressive longs might get trapped at higher levels. Further to this, most of the components of BankNifty and the NIFTY have been trading OVERBOUGHT and with BEARISH DIVERGENCES on their respective Daily Charts.

All and all, given this reading, today, though we might see some mild opening, it is very strongly advised to refrain from making any long positions. The NIFTY, per se, may consolidate a bit before correcting on expected performance of defensive sectors, but correction from higher levels is absolutely imminent again and just cannot be ruled out sooner or later. It is very strongly advised, to keep away from making fresh purchases. While maintaining adequate liquidity, remaining light on positions and maintaining ultra selective approach with high degree of caution is advised for today.

Milan Vaishnav,

Consulting Technical Analyst,

+91-98250-16331

Wednesday, May 15, 2013

Daily Market Trend Guide -- Wednesday, May 15, 2013

MARKET TREND FOR TODAY May 15, 2013

The Markets had a very range bound session yesterday as it moved in a very narrow band and showed no strength to give any recovery after day before yesterday’s knock of over 2% as it ended the day with moderate gains. The Markets opened on a mildly positive note and it soon dipped into the red to give the day’s low of 5970.05. However, it quickly made its bottom around those levels and started crawling back into the green. In the late morning trade itself, it went on to give the day’s high of 6026.20. It did not sustain its gain as it came off its lows in the afternoon trade to trade flat again. It showed no signs of attempting any recovery and spent the rest of the session trading in sideward manner. It finally ended the day at 5995.40, posting a moderate gain of 14.95 points or 0.25% while forming a sharply lower top but almost similar bottom on the Daily High Low Charts.

Today, we may see the Markets opening on a flat to mildly positive note and look for directions. Global Markets are trading positive after strong closing of US Markets overnight and this may aid to flat to mildly positive opening in our Markets. However, going further from there, as the technicals suggest, the Markets may continue to see some more consolidation or some corrective activities from higher levels again.

For today, the levels of 6030 and 6045 shall act as resistance. The supports come in much lower at 5955 and 5920 levels.

The lead indicators remain neutral with downward bias. The RSI—Relative Strength Index on the Daily Chart is 58.0877 and it is neutral as it shows no failure swings or any bullish or bearish divergence. The Daily MACD continues to trade above its signal line. On the Candles, A bullish harami occurred (where the current small white body is contained within an unusually large black body). During a uptrend this pattern implies an end to the up move as the bulls appear to have exhausted themselves. During an uptrend (which appears to be the case with NIFTY) the bullish harami pattern is bearish as the bears appear to be gaining strength as the bulls weaken.

On the derivative front, NIFTY May futures have added over 12.35 lakh shares or 5.80% in Open Interest. This is certainly a positive factor which may prevent the Markets getting immediately weak. The NIFTY PCR stands at 1.19 as against 1.16.

Overall, there is a contradictory reading on the technical charts and the derivative data. The technicals of the Markets very clearly suggest that the Markets should remain weak in the immediate short term and even with the positive opening or short up move, it is likely to see some paring of gains again. However, the derivative data show massive addition of Open Interest in NIFTY futures which show creation of fresh long positions.

Given the contradictory reading on the technical charts and the derivative data, there are clear possibilities of a volatility returning to the Markets. The positive Global Markets may see the Markets trading strong initially but it also has equal chances of seeing corrective actions from higher levels and this will keep volatility ingrained in it. It is still advised to avoid taking fresh longs in aggressive manner, but at the same time, profits on the short side should be adequately protected. Neutral outlook is advised for today.

Milan Vaishnav,

Consulting Technical Analyst,

+91-98250-16331

Tuesday, May 14, 2013

Daily Market Trend Guide -- Tuesday, May 14, 2013

MARKET TREND FOR TODAY May 14, 2013

The Markets yesterday finally took a hit on its chin as it saw much awaited and long overdue correction setting in after few days of prolonged up move as it ended the day with deep losses. The Markets opened on a negative note and remained negative throughout the session as it went on to take further cuts. After opening on the negative, the Markets traded the morning session with capped losses. However, after the morning trade, these loses kept on widening as the Markets kept making news lows after forming a downward trajectory until the end. It went on to give the day’s low of 5972.90 towards the end of the session. No recovery was seen even towards the end and the Markets finally ended the day at 5980.45, taking a deep cut of 126.80 points or 2.08% while forming a lower top and sharply lower bottom on the Daily High Low Charts.

Technically speaking, since the Markets have ended the day at the low point, it is likely to open negative and continue with its corrective activities. However, we can expect the Markets to open on a flat note and look for directions. Heavy delivery based offloading was reported yesterday and therefore there are bright chances that the Markets continue to see its corrective activities.

For today, the levels of 6025 and 6040 are likely to act as resistance on the upside. The supports come in at 5940 and 5885 levels.

Lead indicators continue to show bearish and downward bias. The RSI—Relative Strength Index on the Daily Chart is 57.0868 and it has just crossed below from a topping formation. This is bearish. Further, RSI has set a new 14-day low and this too is bearish indication. Also, RSI has set a new 14-day low whereas NIFTY has not yet and this is Bearish Divergence. The Daily MACD, however, continues to trade above its signal line.

On the derivative front, NIFTY has shed over 11.98 lakh shares or 5.32% in Open Interest. This very clearly suggests that a serious unwinding has been done even in the derivative segments and no shorts are being seen built up.

As per the Cash Market figures, there is been increase in delivery based volume in all key NIFTY components as they declined. This very clearly shows that delivery based selling was seen in the cash markets in heavy volumes. Under such circumstances, one usually observes increase in Open Interest in derivative segment. This means that usually delivery based selling is supported by shorts in the derivative segment. But this time, it is not so. Even the derivative segment has seen heavy shedding of Open Interest. This signifies that even with the delivery based selling in the cash segment, no shorts have been created in the derivative segment and the derivative segment has also seen unwinding as well.

All and all, there are no indications that the Markets would find support nearby. We are likely to see continuation of the corrective trend, at least in the immediate short term. Even if we see some up move, in form of a technical pullback, it is all likely to a dead cat bounce and the Markets may start coming off again after some pullback. We continue to advice not to create any aggressive long positions even with this fall as weakness might continue. Fresh positions should be taken very selectively and profits should be vigilantly protected on either side. Cautious outlook is continued to be advised for today.

Milan Vaishnav,

Consulting Technical Analyst,

+91-98250-16331