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Weekly Index Outlook
Sensex (8325.8)
The might of the bulls was severely tested last week as the Sensex helplessly sliced through one support after another. The slide was finally reined just above the 8000 mark. Frantic cuts in policy rates by the Reserve Bank of India, Bank of England and European Central Bank elicited no response from the equity markets. Sensex ended the week down 6 per cent after recording an intra-week trough at 8047.
All eyes were riveted on the US indices as they hurtled blindly down a bottomless hole. Volumes spiked sharply higher in both cash and derivatives segment, especially on Thursday when the Sensex declined to 8166. Open interest has steadily crept up Rs 53,500 crore. Heavy FII net sales figure in the cash segment implies that they were the chief perpetrators of last week's slide.
We approach the truncated three-day week ahead on the back-foot. Daily momentum indicators are hovering in the oversold zone and the weekly indicators have declined in to negative zone after a half-hearted attempt to generate a buy signal. The close below 8631 trough implies that the short-term trend has turned down again. The bulls can, however, take heart from the fact that Sensex did not penetrate the psychological 8,000 mark and the Nifty held above 2,500 last week.
The sharp decline away from the lower boundary of the triangle that was evolving since late October makes it fairly certain that the down-trend from the January 2008 peak has resumed. A re-test of the October trough at 7697 and a move slightly below to 7300 can be expected over the medium-term in the index. A close above 9,000 is required to mitigate this negative medium-term outlook.
The minimum target for the wave that began on February 13 lies a little below 7000. But there have been instances where the last leg of a five-wave move has been a failure (fails to achieve its minimum target) and the bottom is formed much above the target.
In other words, bulls need to guard last week's low at 8047 carefully to avoid a slide to 7697 or 7255. The area between 7850 and 8000 is a strong support zone for the near term. Short-term resistances would be at 8440 and 8670. Reversal below the second resistance would mean that the index lacks strength and is heading below 8000.
Nifty (2620.1)
Nifty declined past our second short-term target last week proclaiming the continuation of the short-term down trend. If we consider the target of the third leg of the down-move from 2970, immediate short-term targets are 2505 and then 2323. Since the first target coincides with the November 20 trough at 2502, bears should watch out for sharp rebound from this zone. Resistances for the week would be at 2720 and 2790. Reversal from either of these levels would provide the opportunity to initiate fresh short positions.
The medium-term outlook for the index is negative and this view will be mitigated if Nifty closes above 3000. Last week's move signals that the long-term down move from last January's peak could have resumed that can take the index down to 2252 or 2172.
Global CuesGlobal equities continued to reel for the second week in a row. Dow Jones Industrial Average followed the previous week's dismal performance with yet another 6 per cent weekly loss. Next support on the monthly chart is at 6356. If this is penetrated, the index can decline to 5182. Targets for the wave from 9088 peak are 7479, 6498 and then 5370. In other words, the next 200 points band would be an important support to watch in the Dow. Resistance for the Dow would be at 7200. Next support for the S&P 500 is at 605. CBOE volatility index hit a peak at 53 during the week as nervousness mounted among investors.
After the US, it was the turn of the European indices to decline below their 2003 trough. DJ Euro STOXX 50 recorded a weekly close below the March 2003 trough at 1847. Some of the developed market indices in Europe such as the FTSE 100 and DAX are however yet to retrace to the 2003 levels. Asian stock markets were relatively unaffected by the mayhem. China's Shanghai Composite index closed with a 5 per cent weekly gain while Taiwan Weighted Index closed with 2 per cent gain. —
Strong & Weak futuresThis is list of 10 strong futures:
Amtek Auto, Mphasis, Ultra Cemco, TVS Motor, BRFL, Hind Zinc, Auro Pharma, Cipla, Matrix Lab & M&M.
And this is list of 10 Weak Futures:
Rolta, Aban, Indian Bank, Ranbaxy, Syndicate Bank, EKC, Gitanjali, Yes Bank, ICICI Bank & Tata Chem.
Nifty is in Down Trend.
Maruti Suzuki
Maruti Suzuki failed to move above the resistance at Rs 700 as indicated in this column last week. But the stock is halting above the first support at Rs 636. The 21 and 200-day moving averages present in this band will lend strong support in any declines. Support just below at Rs 613 would be the next port of call. Short-term investors can look out for buying opportunity on a reversal from this level. The rally from the December 3 trough at Rs 446 would be under threat only on a close below Rs 613. Resistances for the week would be at Rs 672 and Rs 690. As we have been reiterating, there is a strong medium-term resistance in the band between Rs 700 and Rs 750 and the stock could have difficulty moving beyond this band just yet.
Tata Steel 
Tata Steel too slipped lower though the rebound witnessed on Friday curtailed the weekly loss to 9 per cent. Friday's revival can trigger a rally to Rs 170 or Rs 184 next week. The stock is currently halting just above the key medium term support at Rs 145.
But we retain the negative near-term outlook as long as the stock trades below Rs 184.
Fresh short positions are advised only on a strong decline below Rs 145.
Medium term view for Tata Steel is neutral. Targets of the down move from Rs 260 peak are Rs 145 and then Rs 109. In other words, there can be a rebound from Rs 145 that takes the stock higher towards Rs 200 again. But breach of this level will pull the stock to Rs 136 or Rs 109.
Reliance Ind 
Reliance Industries declined in line with our expectation last week. As discussed earlier, the stock has been forming a symmetric triangle since October 2008. The lower boundary of this triangle at Rs 1,200 was penetrated last week. A firm close above this level is required to make the near-term outlook positive again. Next resistance band for the stock is offered by the 50 and 200-day moving averages between Rs 1,250 and Rs 1,300.
The stock, however, bounced back from the key short-term support at Rs 1,118 on Friday. Fresh shorts are advised on a breach of this level with the targets of Rs 1,108 and Rs 1,067. Medium-term view for the stock stays neutral as long as it moves in the band between Rs 1,000 and Rs 1,500.
Infosys 
Infosys moved sideways with a negative bias in the first four sessions before the bullish engulfing candle formed on Friday helped the stock to close with a minor weekly loss. The key near-term support at Rs 1,165 is cushioning the declines in the stock. A short-term rally is possible now and this can take it higher to Rs 1,260 or Rs 1,320. A downward reversal from the first resistance will mean that the stock will move lower to Rs 1,150. However, the short- term view will turn negative only on a close below this level. A breach of this level will imply an impending fall to Rs 1,101.
The medium-term view for this stock remains sideways and Infosys is likely to move between Rs 1,000 and Rs 1,500 in this period.
SBI 
It was a water-shed week for SBI as it made a decisive move below the support at Rs 1,000. This is an important support from a long-term perspective since it occurs at 61.8 per cent retracement of the entire bull-market from the 2001 trough.
If we consider the third leg of the down-move from Rs 1,376, the next target for the stock is Rs 860.
Since this coincides with April 2007 trough, that would be the next support level.
Breach of this level will take the stock to Rs 760.
Resistances for the week would be at Rs 985 and then Rs 1,025.
Short-term investors can sell the stock in rallies as long as it trades below the first resistance.
ONGC
ONGC declined to Rs 640 on Tuesday and spent the rest of the week vacillating in a range between Rs 640 and Rs 670. We retain a bearish short-term view for the stock. This view will be negated only on a close above Rs 694. Short-term investors can initiate short positions in rallies with a stop at Rs 700. Downward targets for the stock are Rs 620 and then Rs 586.
There is no alteration in the medium-term outlook for this stock, which remains negative and the possibility of a decline to Rs 550 remains open as long as the stock trades below Rs 750. The long-term support at Rs 600 can however spring a sudden surprise on the bears in this counter
FII DATA
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 06-Mar-2009 | 1788.28 | 2062.96 | -274.68 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 06-Mar-2009 | 672.6 | 373.66 | +298.94 |
Downtrend may persist in Nifty future
The benchmark Nifty finally broke the 2650 support level after moving in a narrow band for a few weeks. The Nifty future closed at 2608.65, a sharp fall of 4.44 per cent over the previous week's close of 2730. However, despite the sharp weekly fall, the benchmark scored handsome gains on Friday on the back of short covering. This helped the discount narrow down to just 12 points with respect to the spot close, which ended the week at 2620. Another interesting impact worth mentioning is trading volumes; the average daily turnover improved sharply to Rs 42,450 crore, which is better than the last four month's average.
Follow-up1) We had advised traders to go short on Nifty future keeping stop-loss at 2820.
2) We had also advised setting a bear put spread by buying 2800 put and selling 2600 put.
Both the strategies ended the week profitably.
OutlookAs the Nifty future finally broke the crucial 2650 mark, we expect the downtrend to continue. The coming weeks might see Nifty future re-testing its October low and weaken even further. While the immediate support appears around 2550-2500, a dip below could take the Nifty future to 2250 level. On the other hand, the Nifty faces very strong resistance around 2680 level. And a move past 2680 could take it 2820, though in between it faces minor resistance at 2750.
We expect the downtrend to continue for this week as well. While Nifty future may begin on a calm note this week, which has only three trading sessions - Tuesday and Wednesday are closed for festivals, it could face heavy selling pressure during the latter part of the weeks, which might take it to 2550-2500 level.
Option monitorAmong calls, 2600, 2700 and 2800 strikes were the most active while 2500, 2600, 2400 and 2200 puts were in the traders' focus. The 2600 call shed 9.42 lakh shares in open interest positions while 2700 and 2800 calls saw moderate accumulation. On the other hand, 2500 and 2600 puts accumulated 8.63 lakh shares and 4.2 lakh shares in open interest positions. This indicates that traders are squaring off the higher strike contracts and buying the lower strikes expecting further falls in the market.Volatility Index
India VIX or Volatility Index, which measures the immediate expected volatility, has weakened further to 37.94 from last week's levels of 40.21. Though a fall in the volatility index is generally positive for the index, we hold a different view this time around as accumulation was seen at lower levels.
RecommendationsWe advise traders to adopt the following strategy.
1) Consider going short on the Nifty future, keeping the stop-loss at 2680, if the Nifty future opens on steady note on Monday. The stop-loss has to be adjusted progressively so that traders could lock in the profits should the Nifty future move further downtrend. Traders can book profit at 2550, 2250 levels keeping in mind the individual risk profile. This week being a curtailed one, Nifty future could see sideways movement intra-day. Risk-averse traders could adopt the same strategy using mini Nifty contracts.
2) FII trends
The cumulative FII positions as percentage of the gross market positions in the derivative segment as on February 27 was 36.03 per cent. They were predominantly sellers in the F&O segment last week. They now hold index futures worth Rs 7,832.21 crore (Rs 7,336.16 crore) and stock futures worth Rs 12,008.55 crore (Rs 11,934.72 crore).
Their index options holdings stood higher at Rs 17,476 crore (Rs 14,809.76 crore).
NIFY & SENSEX SPOT LEVELS FOR 8TH MARCH
 | 2620.15 | ( 1.69 %) | 43.45 |  |
| 1 | 2 | 3 | ||
| Resistance | 2652.35 | 2684.55 | 2741.00 | |
| Support | 2563.70 | 2507.25 | 2475.05 | |
 | 8325.82 | ( 1.56 %) | 127.90 | | |
| 1 | 2 | 3 | |||
| Resistance | 8433.32 | 8540.81 | 8733.89 | ||
| Support | 8132.75 | 7939.67 | 7832.18 | ||
Hammer and hanging man candlestick patterns
Some candlestick patterns such as hammer, hanging man, inverted hammer and shooting star are formed with a single candlestick. Hammer and inverted hammer are formed following a decline and are bullish reversal patterns, while the hanging man and shooting star candlestick patterns are formed following an up move and are bearish reversal. Among these patterns, we shall discuss hammer and hanging man candlestick patterns in detail. Hanging man pattern is similar to a cross in appearance and occurs near the end of an uptrend. This pattern is formed when the stock opens high and there is an intra day sell-off followed by a sharp recovery that brings the stock back near its opening level. So, the pattern has a small body with a long lower shadow (twice the length of the body).
The preceding trend determines the classification that the pattern as hanging man or hammer pattern. A hanging man candlestick pattern is seen in the Jindal Steel chart. The stock found support at around Rs 1,600 in early July 2008 and was on a medium-term uptrend. In early August, the stock formed a hanging man candlestick pattern, signalling trend reversal.The candlestick formation of bullish hammer patterns is almost similar to the hanging man pattern except the point of its occurrence. When the same pattern, that is, when the stock opens high and there is an intra day sell-off followed by a sharp recovery that brings the stock back near its opening level is formed after a downtrend, it is called a hammer pattern.The BHEL chart illustrates the hammer pattern. The stock's downtrend, which commenced in September 2008, reversed, shaping a hammer candlestick pattern at Rs 1,000. The stock moved up in the two weeks following this pattern.
Though both the bullish hammer and the bearish hanging man pattern do signal an impending trend reversal, it is best to wait and see the candlestick patterns on the subsequent days before selling or buying any particular stock. A long black candle with a shaven head would be ideal for confirming the trend reversal in hanging man pattern. On the other hand, for bullish hammer, a long white candle would be a perfect conformation of trend reversal. Moreover, you can also confirm the signal with the help of other tools such as oscillators, moving averages etc. before deciding to act based on these patterns.
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Arvind Parekh
+ 91 98432 32381
