Volumes tapered off towards the close of the week. Data released by SEBI reveals that foreign institutional investors have bought $603 million in the four sessions from the Budget day.
Domestic institutional investors too were largely net buyers last week.
Retail investors seem to have borne the brunt of the post-budget selling.
A turnover of Rs 96,000 crore, recorded in the derivative segment of NSE on Monday indicates that leveraged positions built up in anticipation of a post-Budget rally could have been the primary factor that pushed stock prices lower on the Budget day.
The 10-day rate of change (ROC) oscillator has declined into negative zone and the 14-day relative strength index is positioned at 38.
Both these readings reflect a bearish short-term outlook. That the Sensex has recorded a close below its 50-day moving average is also a negative.
But investors can take heart from the weekly momentum indicators that are holding in the positive zone.
Interestingly, monthly ROC has risen from the negative zone and is poised on the median line. The inference is that the movement of Sensex over the next few weeks will determine the long-term direction that the index takes.
The third wave of the down-move from 15,600-peak started on the Budget day and this wave has the downward targets of 13,513 and 12,553. Sensex moved to the first target on Friday. There are a cluster of supports around the 13,500 level provided by the trough formed on May 26 and the ceiling of the post-election result gap.
A short-term bounce is possible here that takes index to 14,000. But failure to record a strong close above 14,000 would mean that the weakness would continue in the short-term.
We stay with the view that the medium-term trend will turn conclusively negative only on a close below 13,300. The yawning gap between 12,219 and 13,479 will result in the decline accelerating once the index closes below 13,300. Fibonacci retracement of the up-move from March lows give us the medium-term targets of 12,730, 11,840 and 10,950 in the event of a protracted down-move.
A brief review of the long-term outlook is warranted at this stage. We have adhered to the view that the up-move from March lows was a counter-trend rally in a long-term down-trend (bear market rally in common parlance and B wave in E-wave terminology).
A strong weekly close above 16,200 is needed to alter this view. The behaviour of market participants in May and June had all the hallmarks of the B wave and patterns in the charts of other global indices also support this view. Investors holding short-term positions need to tread carefully at this point since the C wave of the long-term down-trend could have commenced from the 15600 peak. This count will be confirmed on a strong close below 13000. The force and ferocity of the C wave downward is known to all. But bulls need not throw in the towel just yet. A strong rebound next week will mean that the B wave can extend for a few more weeks and maybe help Sensex reach 16,000.
Sensex closed on a very weak note on Friday. But a short-term rebound can take the index to 14,059 or 14,455 early next week. Key resistance zone for the week would be between 14,000 and 14,250. Failure to move beyond this zone will result in the index heading lower towards 13,346 or 12,730 in the short-term.
A close above 4,450 is needed to make the medium-term view positive again for Nifty.
The Dow moved in line with our expectation, declining below the first target of 8,198. Close below 8,200 is a negative from a short-term perspective and implies that the index could decline towards the next target between 7,960 and 8,000. But we stay with the view that a re-test of March lows becomes a possibility only on a strong close below 7,800.
Commodities led by crude pulled the CRB index lower by almost 3 per cent. This index has retraced over 40 per cent of the rally from the March lows and the speed of the current decline implies that the long-term trend in commodities continues to be down.
As the Sensex declined from 21,000 to below 10,000, all the key valuation parameters fell below the historical averages. The BSE Sensex now trades at a forward P/E of 16.1x v/s the 15-year average of 14.3x, while the P/B multiple has declined from 4.7x to 2.8x. Following the deceleration in earnings momentum, Sensex RoE is now estimated at 18% v/s its peak RoE of 24%. At the current levels, earnings yield to bond yield is 0.8x, close to the long-term average of 0.73x. (At March 2009 Sensex levels of 9,500, it was about 1.3x.) This is one of the important parameters indicating that equities have moved from a stage of undervaluation to their long-term average fair values.
This is list of 10 strong futures:
- Colpal
- Dabur
- EduComp
- ITC
- DrReddy
- Gail
- Maruti
- Patni
- Cipla
- GTOff Shore
And this is list of 10 Weak futures:
- AdlabsFilm
- Aban
- BajajHind
- EssarOil
- HDIL
- NagarFert
- ChambalFert
- OrchidChem
- Suzlon
- PrajInd
Nifty is in Down Trend.
Presence of 200-day moving average at Rs 1,575 makes the entire zone between Rs 1,500 and Rs 1,600 a very potent support zone if the decline continues. Short-term resistances for the stock are at Rs 1,900 and Rs 1,970. Short-term traders can initiate short positions on a reversal from either of these levels.
However, close above Rs 1,690 will imply that SBI has begun a fresh leg of the up-move from March lows that can take it towards Rs 2,000 again. Those holding long positions can do so with a stop at Rs 1,480. Close below this support will signal an impending decline to Rs 1,416 or Rs 1,290.
There could be a brief rally to Rs 382 or Rs 405 next week. Reversal from the first resistance would be the cue for short-term traders to initiate fresh shorts on this counter.
Short-term resistance for the stock is at Rs 1,750. If the stock fails to move above this level early next week, it will imply an impending down-move to Rs 1,650, Rs 1,602 or Rs 1,550 in the near term.
However, we maintain that the medium-term view on this stock stays positive as long as it holds above Rs 950.
| FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| FII | 10-Jul-2009 | 1713.69 | 2617.01 | -903.32 |
| DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) | ||||
| Category | Date | Buy Value | Sell Value | Net Value |
| DII | 10-Jul-2009 | 1432.58 | 546.45 | +886.13 |
 | 4003.90 | ( -1.89 %) | -77.05 |  |
| 1 | 2 | 3 | ||
| Resistance | 4096.97 | 4190.03 | 4250.12 | |
| Support | 3943.82 | 3883.73 | 3790.67 | |
 | 13504.22 | ( -1.84 %) | -253.24 | | |
| 1 | 2 | 3 | |||
| Resistance | 13794.81 | 14085.40 | 14273.61 | ||
| Support | 13316.01 | 13127.80 | 12837.21 | ||
Price rate of change (ROC) oscillator measures the velocity of price movement. It is a simple yet effective indicator that gives investors prior warning about impending change in trend.
To plot the ROC, the time period over which the oscillator has to be plotted needs to be determined first. If the period is taken as 12 days, the difference between the latest closing price and the closing price 12 days ago is used for plotting this oscillator.
When a stock price is trending up or down, there is a period when the rate of increase or decrease in the stock price slows down and this phase generally precedes a reversal in trend.
ROC captures the slowdown in momentum in this period thus warning the investor about flagging of buying or selling fervour.
The warning is given in the form of positive or negative divergence in the ROC chart. A positive divergence is noticed when the stock price makes lower lows while the ROC plots higher lows. Similarly, a negative divergence is observed when the stock price continues to rise forming higher peaks, while ROC peaks out and begins form lower peaks.
The ROC can remain overbought or oversold for extended periods during which the price continues to trend higher or lower. When ROC is poised above zero, it indicates an increase in upward momentum and ROC below the zero line indicates an increase in selling pressure.
The MRPL chart illustrates overbought and negative divergence. In late May, the ROC reached overbought levels and it continued to remain at those levels till early June. In late May, if you had hurried to open a short-position, you would have gone wrong as the stock price continued to move higher.
We can observe a negative divergence during early June as the stock price made higher peaks, the ROC formed lower peaks. Subsequently, the ROC entered into the negative territory signalling a sell.
As with most technical indicators, ROC should be used in combination with other tools of technical analysis as well as other non-momentum based indicators.
Arvind Parekh
+ 91 98432 32381
