Nifty in Range, Bullish Until 5400 Holds - AP

Nifty stands poised for a breakout. With the budget on the horizon and expiry, things could get unpredictable, volatile. If 5650 is crossed, then one could expect 5950-6000. This is valid until 5400 holds.

Nifty Upside Target 6130 - Inder Bhatia

Nifty is moving in channel with 5970 as strong support of channel and an upside resistance of 6130 If it breaks below 5970 we could test lower side 5880-5850.

Nifty Could Test 4900, if 5550 Not Broken - AP

The Nifty is at the top of the channel. If it breaks 5550 and 5625, we are then looking at a new trend and the targets would be higher. However, the bias is toward the lower end of the channel. If the above channel's upper trendline is now broken, then within a few weeks Nifty could test 4900 levels soon.

Jan 2008 Top Not Breached - AP

Despite all the visible strength and the fact that BTST traders were not allowed to sell the stocks purchased the previous day, the intermediate top of 5545, which was reached in January 2008, was not crossed.

And Why the Nifty May Not Correct - GV

In my earlier post [Nifty Looks to Undergo Correction], I cited host of issues why the Nifty is looking weak - from conventional technical pointers - while I suggested a possible medium-term bearishness of sharp and sustained nature. Now I am presenting an effort to consider whether the turnaround is anywhere in sight.

In May, FIIs sold a cool Rs 12000 crore while DIIs bought a net Rs 6400 crore. Since then FIIs have been buying Rs 7700+, Rs 8300+ and in August Rs 4000 crore [on date of writing] against DII selling of Rs 4600+, Rs 6300+ and Rs 2300+ crore in August [on date of writing]. Obviously it is the FIIs who have been holding the index or certain segments of the market, or even certain stocks to their liking. This in spite of a 'possible distribution' by the Fourth Quater, as explained in earlier post.

All the reasons given in the earlier post - rising channel, index near the upper band, negative divergences in important oscillators cannot be facts that are tracked only by individual traders, but also by the FIIs.

But then simple common sense would demand that the FIIs should have been looking to hedge their positions in futures if they are getting to dig in to the last nickels from their bags of money. This in turn would make them want to hedge their positions - especially considering that one quarter of the market - the DIIs - have consistantly been selling which is a known factor to everybody.

So, do we see any sizeable hedging in futures? Actually we haven't seen any at all - both in index futures and stock futures unless they have done this in options.

In the index futures FIIs have net sold very nominal Rs 469 crore and in stock futures they have net sold another smallish Rs 432 crore in this contract month to date. Though in the previous contract month they had net sold Rs 2700+ crore and Rs 1000+ crore, while they had net bought an equivalent value in the June contract month - does not say much.

While their hedging in futures is rather thin, in recent days since 9th of this month, the OI in certain strikes - like from 5300 to 5500 - has gone up by about 44 lakh points in index puts, while it has gone up by only 10lakh points in index calls of strikes from 5400 to 5700. In these days of pessimism, I cannot think of retail investors writing put options and if the FIIs have a clear gameplan then they can very well do the writing - neither margin nor uncertainity would be a problem nor fear psychosis.

Secondly, the maximum pain theory workings reveal that the outflow for the writers shoots up sharply when the index goes below 5400 and not so much when it raises above 5500. Roughly said, a study of option trades suggests the Nifty is quite possibly biased on the longs.

To illustrate, as on closing of 13th the outflows to writers for current OI, if nifty were to close at various strikes would be as below:

5100 - 838
5200 - 506
5300 - 264
5400 - 154
5500 - 191
5600 - 354
5700 - 611

The lowest at 5400 is a misleading thing as it has remained so since beginning of the contract. It is possibly so that quite probably while somebody is buying calls, they themselves could be writing the puts, or vice versa, provided they are market trend deciders.

Because of this inference, coupled with the fact that I do not see much of futures selling by the FIIs, I am inclined to believe that Nifty could test the upper band of the rising channel and possibly break above it. If it so materialises then the bear trap and short covering can take it longer and farther in to the near term. We might even see a blow-off rally kind of move.

Distribution is best done in euphoria and accumulation is best done chaos.

The FII fund flow chart - black line for their derivative trades and white for their equity:

The indicators in the middle and bottom inner windows are results of my efforts to convert trades as indicators to issue buy and sell signals. A cursory look would reveal that the indicators have been quite decent even in these days of a rangebound trading. And notably there is no sell signal currently.

For a long time, I could not satisfy EW Neowave rules that I know of with my earlier counts. Recently I changed the count with [II] ending at last May's highs and [iv] as a Double combination ending at 4786 on May 25, with the 5th and final impulse of the larger 'A' in progress and many of my earlier problems seem to have been solved.

If we are in an impulse move from 4786 and it does so look then we could be in the (iv) sub-wave with (iii) only slightly larger than (i) and we might have ended a double combination at 5372 on 12th. If all of this is correct then 5625 and 5780 look quite in the realm of possibility in the near term.

Of course now the usual rider: In the days of mind boggling volumes in Nifty options and futures it may not be an issue for the funds to sharply increase their hedging levels in a very short time.

Nifty Looks to Undergo a Correction - GV

To many, the Nifty looks poised to correct. The hourly charts shows:

• A rising channel, which indicates a breakout to the downside.
• Bearish divergencies on RSI & MACD.

On the economic front, we see a falling IIP and steady inflation and RBI trying to drain out cash and possibly a rise in the cost of funds.

The daily chart too shows:
• A rising channel.
• The index painfully close to the upper band.
• Negative divergences in both RSI and MACD.

From a near term perspective these are not very worrisome. Technical analysis (TA) always gives two 'effects' to a single 'cause' - surely one of them is bound to materialise. If negative divergences suggest weakening of trend, there is another school of thought that says “in to a strong trend, negative divergences could be suggesting continuation of the trend”. Even in this case, the trend has been continuing for a while now despite so-called bearish divergences, sky rocketing inflation, anticipated RBI moves, etc.

The Indian stock markets have four quarters at play: retail, FIIs, DIIs, and the fourth unseen quarter – a much maligned group responsible for all our ills; a group never seen but only talked about but which is strong enough to do something unlikely on a given day. What worries me about the medium term health of the market is the signs I get from deep within the markets, which point to the activities of this fourth quarter.

If the Nifty could rally intraday on the back of a sharp fall in US (thus, poor sentiments) on the 12th, then there must be the fourth quarter playing; especially since on the day, FIIs net-bought a mere Rs 218 crore while DIIs net-sold a huge Rs 656 crore.

I have a market breadth study that reads as below:

Market Breadth as a rule slopes down. For example, my 'proprietory' adjusted breadth gave a reading of +0.37 on December 13, 2001 when the index was in 1100's, and now reads a minus 67 - yes, minus 67.3551 - with the index in 5400’s.

When the Nifty was in the trending phases the indicator gave very early and clear signals and most of the time it hit the bull's eye. But in consolidation phases, it does not say much except showing a slow - a painfully slow - message of accumulation or distribution.

However, reading this can be very tricky, made so by the natural downward bias of the indicator. Essentially one had to go by the slope of the indicator over a reasonably long period. So I created a histogram for easy reading of divergences.

From Nov-09 - Mar-10 there was a positive divergence suggesting accumulation. From Jan-10 to 'now' there is a negative divergence.

The above chart tells me that the larger market has been "undergoing shifting of stocks" that rallied during this period, which is nothing new. Except in a foolishly bullish market not all sectors rally - they only take turns; however, the number of such 'rallying-phase stocks' have been dwindling. Compare this with the period from Jun-July last year to Jan 2010. The indicator stayed sort of horizontal. The histogram / indicator for the period till June-July 2009 to be ignored as that was the last phase of the secular rally. Now we are considering a phase that has been mildly rallying or sort of consolidating. In this phase, the breadth has been increasingly weakening suggesting "possible distribution" sectorwise.

The depths of ocean a depths of the markets are only for the cunning and the gullible - the balance 2 quarters of the circle leaving the FIIs - the D&F variety. Thus, the Nifty has to fall some time - after all the price travels only in waves. And it has fallen before also and so it will in future as well. What is worrying this time around is that if the 4th quarter had been distributing then the fall could be more pronounced and the recovery may not be swift as before - 'V' shaped things may not happen - after all the 4th quarter would require some time to take position again. In other words, the fall not only could be deeper but recovery could also be slow after the inevitable volatile periods.

To be exact, my worry is not that it might correct or the timing of it but as and when it does, it could be a deep one and recovery could be slow.

Caveat: Prior to hitting 6000+, in mid 2007 onwards, my MB indicator was sharply sloping downwards - possibly caused more by heavy tranches of selling rather than gradual and consistant weakening of breadth (as could be the case now) because there was no negative divergence in the histogram then. In other words the indicator gave one wrong sell signal while the Nifty was still climbing and continued to do so but never showed any negative (wrong) divergence. The indicator did catch up with the index but that was a clear 700 points later. If I remember correctly, the DIIs were selling prior to May 2007 as the FIIs were getting deeper into their frenzied buying while commencing that rise of 5000 to 6000 on the index. And later on, the DIIs simply could not take the heat of 'not being in the party' and joined late and were to regret it deeply in early 2008. For all I know, something like that can always happen.

Nifty - Flag and Pole?

A thought had crossed my mind when we saw the rise from 4960 to 5360 - is this a flag and pole? The rise looked like an impulsive third wave [3rd of III], so it follows that the slow downard movement had to be a corrective. It is indeed behaving very much like a 4th wave in progress. However, if this is a flag-and-pole then it is saying that the target for Nifty is 5600. Only a break of the upper trendline of the down channel would make things certain. Until then it would be trading within the channel. The max downside for the short term is 5100, where the wave 1 [1 of III] ended.

Nifty Update for JUly 8 - Inder Bhatia

The Indian market opened on a flat note and saw a choppy session closing with a positive note. As Nifty was getting selling pressure around 4220 zone and taking support around 4160 zone. If Nifty traded above 4230 it can test 4265-4310. On the higher side 4330-4350 zone one can watch to build short positions and trading below 4140 levels we can see a sharp sell-off.

Nifty Update for June 30 - Inder Bhatia

The Indian market opened on a flat note and saw an upward journey in the afternoon session and closed in the flat zone. Nifty is showing profit-booking at higher level and all the gains vanished at the end of the session. For the coming session trading below 4368, Nifty will test 4342-4300. On the other side 4480-4513 zone will act as strong resistance.

Nifty Update for June 22 - Inder Bhatia

Last week sensex lost 4.7 percent and the Nifty closed down 5.9 percent respectively. Last week we had mentioned about a rising wedge and long-legged doji combination. Since then we have seen a good reversal from the upside and the Nifty has reached our level of 4249-4189. Nifty bounced from 4202 zone and closed around 4313.

Daily: We are forming a Head and shoulder pattern that is another bearish and strong reversal pattern on top. The pattern is still in the process of formation. If current Nifty goes around 4370-4456-4504 level and cracks the neckline we could see a lower target around 3865-3700. We have seen Reliance Industries had fill post-election gap around 1976.

We can expect the same for the Nifty which could come down around 4000-3795 to fill the gap sooner or later.

BUY BANKINDIA 339 TGT 347>355 Stoploss 333.

SELL IBREAL below 183.50 TGT 165>145 Stoploss 200.50.

Last week we had mentioned that any major rally will correct before its next upmove . We have so far seen just 20 percent retracement. The 23 percent (4151 level); 38 percent (3850) and 50 percent (3592) is shown in the chart.

The Indian market opened on a higher note tracking positive cues but saw a choppy session up and down to close with handsome gains. On the hourly chart we could see some bounces around 4371-4434. On the downside 4240-4189 acts as a support zone while breaking below 4189 more selling could be seen.

Nifty Update for June 19 - Inder Bhatia

The Indian market opened on a weak note tracking global cues and ended in the red zone. After the negative inflation Nifty fell in the red terrain and saw a selloff around the sector. If we open gap-down around 4189 zone or if today's low is not broken then we could see pullback around 4370-4453. On the lower side 4220-4189 zone would act as a support zone.

Nifty Update for June 18 - Inder Bhatia

The Indian market opened on gap-down but saw selling pressure in the final hours and closed in the deep red zone.

As we had mentioned about a rising wedge we had closed below the trendline but on the daily chart we are near support zone.

If we see some pullback on upside Nifty could test 4450-4473. Overall the trend is down and trading below 4370 levels we could test 4189-4079.

Nifty Update for June 17 - Inder Bhatia

The Indian market opened gap-down but bounced back in the second half and closed in the green zone. After cracking the lower trendline Nifty is still below the trendline seen in the above chart. On the upside Nifty will face resistance around 4553-4600 levels and trading below 4479 it can test 4450-4400.

Nifty Update for June 16 - Inder Bhatia

The Indian market opened gap-down but bounced again and saw selling pressure at higher level to close in the red zone. As we had mentioned in the weekly update about rising wedge still we had close near support zone on lower trend line if cracked with volume we can see more sell of and lower side it can test 4320-4189 zone. On the upside trading above 4555 level it can test 4580-4609 zone

Nifty Weekly for June 15-19 - Inder Bhatia

Weekly: In the above chart we seen that a major rally always corrects and retraces 38 percent to 61 percent before the next move but from the lower levels still we have seen just a one-way rally without any correction or retracement.

Daily: Nifty is facing strong resistance in the 4650-4700 zone. For the coming day we could see Nifty moving in the range of 4700-4487. Trading below 4487 we could see a sharp selloff and can test 4249-4189. The Rsi is still high and the market is in the overbought zone. On the upside 4633-4733 will act as a resistance zone.

The huge post election gap needs to be filled or partially filled. On the weekly chart we see a Long-legged Doji candlestick pattern. Long legged doji patterns suggest great amount of indecision on the market. This pattern is formed when the prices trade well above and below the day opening price, but then close almost at the same level as the opening price. It means that the end result is not different from the initial open despite the whole excitement and high volatility during the day. This implies a loss of sense of direction and that there is great amount of indecision in the market.

The Indian market opened on higher note tracking positive cues and saw selling pressure at higher levels to close in the red. On the hourly chart we are seen a Rising Wedge pattern that is a reversal pattern but still we have not cracked from a wedge pattern. For a valid pattern we have to close below 4507 levels. For the confirmation of the pattern we need to break the support line in a convincing fashion. For the coming session if Nifty trades below 4566 it may test 4521-4497 zone. On the upside trading above 4650 level we could see further move toward 4730-4750.

Nifty Update for June 12 - Inder Bhatia

The Indian market opened on a flat zone and saw selling pressure at higher levels and close in the red zone. For the coming session if Nifty trades below 4583 it could test 4530-4510. On the upside 4690-4730 zone would act as resistance. Stock-specific action can seen.

Nifty Update for June 11- Inder Bhatia

The Indian market opened gap-up and traded positive throughout the session and closed with good gains. For the coming session trading above 4680 it is likely to test 4711-4736. On the other side trading below 4580 it will test 4510-4488.

Nifty Update for June 9 - Inder Bhatia

The Indian market opened gap-down and saw a rebound from the lower levels, and closed with handsome gains. For the coming session trading above 4570 it is likely to test 4618-4652 zones. On the lower side trading below 4490 it will test 4460-4430 zone. The RSI is still showing negative divergences.

Nifty Update for June 9 - Inder Bhatia

The Indian market opened gap-up but after opening it traded in the red zone and closed in the deep red and negative note. As last week we had alerted about negative divergences on the hourly chart, today we had seen the effect of divergences. For the coming session trading below4405 Nifty will test 4360-4323. On the upside 4510-4523 will act as as resistance. The main support is 4189 level, the uptrend line show on the charts.

Nifty Update for June 8 - Inder Bhatia

Nifty weekly chart has seen a breakout and close above the major downward-sloping line. The next resistances are 4650 with strong support 4450-4190.

DAILY: Last week Sensex gained 3.3 percent and Nifty gained 3.1 percent respectively. Sensex closed with thirteenth consecutive weekly gain. On the daily chart Nifty has formed a Gravestone Doji, which is bearish pattern at the top, indicating reversal. However, it should break Friday's low for confirmation.

The Rsi is still high and the market is in an overbought zone. On the upside 4650-4750 will act as strong resistance. There is mixed short-term signal which is still bullish on the weekly chart but stretched on the daily chart. For the coming week closing below 4559 could test 4479-4420 zone, while on the lower side closing above 4620 could test 4674-4710.

WEEKLY: The Indian market opened on a higher note tracking positive cues from global markets and closing on a positive note. On the higher side we are seeing selling pressure and Nifty has reached the end point of the band and is ready to break out or breakdown. Anything below 4540 levels we can see sell off and Nifty could test 4509-4460. On the upside 4649-4679 will act as resistance.