MARKET REPORT June
03, 2014
Markets saw a big upsurge yesterday on back of massive short
covering and ended the day on robust gains while putting all technical readings
on the back burner. We call it short covering because the Markets have shown
this upsurge with decline in net open interest. The Markets opened on a
relatively quiet note and made quiet advances in the morning trade while it
traded with decent gains. However, the Markets gained further momentum in the
second half of the session while it saw itself strengthening. It kept inching
upwards for the rest of the sessions with virtually no signs of any weakness.
It went on to report the day’s high of 7368.60 and finally managed to end the
day at 7362.50, posting a robust gain of 132.55 points or 1.83% while forming a
higher top and higher bottom on the Daily High Low Charts.
MARKET TREND FOR TODAY
Brushing all technicals aside, the Markets surged yesterday
on back of huge short covering. Today as well, expect the Markets to open and
trade mildly positive, at least in the initial trade. All possible technical
readings suggest the Markets are now overdue for a serious correction but it
has been sustaining just on the back of FII inflows and given this reading we
now sound a serious voice of caution against taking any blanket positions in
the Markets.
For today, the levels of 7390 and 7435 would act as
immediate resistance for the Markets. The supports exist much lower at 7280 and
7210 levels.
All lead indicators suggest otherwise what is happening in
the Markets. The RSI—Relative Strength Index on the Daily Chart is 71.3058 and
it is neutral as it shows no bullish or bearish divergence or any failure
swings. However it trades in ‘overbought’ condition. Further, Daily MACD too
continues to trade below its signal line and it is bearish despite yesterday’s
upsurge.
On the derivative front, NIFTY June futures have shed over
1.89 lakh shares or 1.13% in Open Interest which very clearly indicates massive
short covering today.
Going by the pattern analysis, the Markets have been
consolidating after touching 7500 twice and this consolidation has been in a
broad 200+ point range. However, even while being in consolidation mode, the
Markets are currently “overbought” and any breakout on the upside would make it
further overbought. This is not a good technical signs and the Markets would
sustain just because of inflows but will be extremely unhealthy and with
questionable sustenance.
Overall, at this point, given the technical readings, the
overbought condition of the lead indicators, we now sound a voice of serious
caution against any blanket buying in the Markets. The Markets would also react
to the RBI credit policy later today. The overall consensus is towards no
change in the key rates but given the tendency of the Government to keep
curbing the autonomy, the outcome cannot
be predicted. Under such circumstances it is strongly advised to stick to defensives
while making new purchases and maintain high degree of caution for today.
Milan Vaishnav,
Consulting Technical Analyst,
+91-98250-16331
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