24/10/2011
DEEPAWALI SPECIAL.
THE YEAR OF CORRECTION - 21/10/2011.
First of all let me wish all my readers a very Happy Deepawali and a Prosperous New Year. May you all have a successful trading year ahead...
Last Deepawali the indices were at its high and looked on course to take out its previous high of Sensex 21308 and Nifty 6357. But that was not to be and Sensex fell after making a high of 21206 and Nifty 6338 during Deepawali 2010. One year has passed and the markets have spent the entire year correcting the entire rise.
The most pertinent question on everyone’s lips is whether the Bull market is over? The answer is an emphatic No. We are still in a long term Bull Market setup. The entire year has been spent to correct the previous rise and the indices have taken support at the 38.2% Fibonacci Retracement level. The more relevant question is what now? Let us look at various factors which will affect the market next year.
1. GLOBAL MARKETS.
Global markets have been in turmoil with European markets exhibiting signs of near collapse as the fear of sovereign default increases. There is no magic wand to solve this debt crisis in short to medium term. One needs to be realistic to understand that it will be a long wait for these markets to reclaim some of its past glory.
2. LOCAL FACTORS : GROWTH v/s INFLATION.
The demon of Inflation is showing no signs of abetting as it marches into double digit. RBI has not only failed to control Inflation but has managed to dampen Growth. There is little room for the RBI to increase interest rates further. This cycle may turn around sooner than later and we may see interest rates decline once there is even a hint of inflation showing signs of slowing down.
3. SCAMS & ANNA FACTOR.
The Government has been on the back-foot throughout last year as Scams have rocked the Congress continuously. Arrests of several top leaders and supporters of Congress have affected the morale of the government. Not to mention the anti-corruption drive via the LokPaL Bill undertaken by Anna Hazare and his crusaders of Anti-Corruption movement.
The market has been ruthlessly subjected to the above factors for the past year and even though there is no sign of any positive ending in sight; one can safely say that the worst for the market may be behind us. The going may not become Bullish but the intensity of the Bearishness will be much lower this year.
TECHNICALLY SPEAKING.
Pattern Analysis:
On the weekly charts, both Sensex and Nifty have completed Bearish pattern formations viz. Bearish Head and Shoulders and Bearish Descending Triangle. The target for Bearish Head and Shoulders pattern falls at 14651-13928 for the Sensex and 4357-4143 for the Nifty. The target for Bearish Descending Triangle falls at Sensex 13952 and Nifty 4200. A weekly close above Sensex 19131 and Nifty 5740 will be the first signal that the above Bearish patterns have failed. Till then every rise will be met with strong Selling pressure by the Bears.
Retracement Analysis:
Retracement Analysis clearly suggests that we are in still in a long term Bull market and we are experiencing a price as well as time wise correction. The market is correcting the entire rise from 7697 to 21108 for the Sensex and 2252 to 6338 for the Nifty and currently the market seems to have taken support at the 38.2% level which is at Sensex 15985 and Nifty 4777. Sensex has made an intermediate bottom at 15745 and Nifty at 4720. Only if these recent lows are breached, can one expect the indices to fall upto the level of 50% and 61.8% and i.e. 14402-12820 for the Sensex and 4295-3813 for the Nifty.
Gann Study:
Currently both the indices are taking support the Gann Fan line. For Nifty, if the monthly closing is below 5000, then the Gann Fan Support line will be breached and then the Nifty will head lower to find the next Gann Fan Support line and that will be at 3719.
From the analysis shown above we can conclude that only a close above Sensex 19131 & Nifty 5740 will propel a Bull move as these are the levels where the Bearish patterns will fail. Also these levels coincide with the 61.8% retracement of the entire fall witnessed during last year. So any closing above these levels will propel the Sensex and Nifty towards the previous high i.e. Sensex 21206 and Nifty 6357; and then much beyond. Keep your fingers crossed while you pray for the Bulls.
YEARLY INDEX LEVELS:
For the year ahead, Sensex will face Resistance at 19131-21206-23461 and Support will be at 15106-13219-11621.
For the Year ahead, Nifty will face Resistance at 5740-6357-7046 and Support will be at 4538-3918-3514.
THIS YEAR’S RECOMMENDATIONS:
Buy Bajaj Auto CMP 1641 SL 1470 Tgt1 - 1912 Tgt2 - 2193
Buy Arvind CMP 106 SL 85 Tgt1 - 137 Tgt2 - 169
Buy DishTV CMP 75 SL 62 Tgt1 - 102 Tgt - 130
