Monday, May 12, 2008

Markets Recover from Expected Support Levels

The markets started on a weak note today and had lost about 60 points on the Nifty within the first half an hour and then started making a slow recovery from 4920. It took almost two hours for the market to recover all its losses for the day and just when it managed to reach yesterday’s prices at 4983, the industrial production data was announced. According to the data India's industrial production growth sunk to 3 per cent in March 2008 from 14.8 per cent a year ago and Index of Industrial Production grew at 8.1 per cent in FY 2007-08, down from 11.6 per cent in 2006-07. It took all of ten minutes for the markets to lose everything that it had gained in the last two hours, and even more. This time it made a low of 4915 and started its recovery from there.

This time around support was found at 4915, between our support levels of 4910-4930. And this time the buying seen seemed genuine because the Nifty recovered 97 points from the lows of the day and closed almost 30 points in the green. What triggered the buying is unknown. Maybe it was the technical support (between 4910 and 4930), maybe it was value buying (seems unlikely), maybe it was bottom fishing or bargain hunting (again unlikely because one doesn’t bottom fish when the sentiment is weak), but it definitely wasn’t the sentiment that had changed. A few days ago, in this column, I had mentioned that “technical analysis does help, but sentiment holds the key”. Is it time to change the phrase to – “sentiment doesn’t matter, only technical analysis helps”?

The Nifty is currently standing at resistance at 5020 as shown by the downtrending line. If it were to remain/go above 5020 after 10:30AM then its next target would be close to 5150.

On the daily chart of DLF, we can see that it has made a series of three doji candles (candles where opening price and closing price are the same or very close to each other) and suggests that the short term down trend may be over in this stock and it should see a reversal from these levels. Another positive in this chart is that the RSI is still above 40 and if DLF reverses from here then the RSI will also reverse and a reversal from 40 for the RSI is a good sign. The only negative that can be seen is that the RSI reversed from 60 when the last high was made and that means that it is still not in an uptrend. So, this time we should be careful when the RSI reaches 60 and should maintain a long position in the stock if the RSI were to cross 60. For now, it seems to be a good buy above today’s high of 640 with a stop loss near 607 for a target between 720 and 750 (and more if the RSI were to cross 60). Do not buy if the price doesn’t cross 640.

HDFC Ltd. rose from 2300 to 2900 levels, a move of over 25%, in just a matter of 10 days and then went through a brief consolidation, which has already lasted 8 days. A move above 2750 should confirm that the consolidation is over and it can give a move of another Rs.450/- in a matter of two weeks. If you can see the three trendlines on the chart, you can notice that it looks like an ‘F’ or a Flag complete with the staff. Look to buy above 2750 with a stop loss of 2600 for a target near 3200.

IDBI, after a sudden downfall, went into a phase of consolidation for over 3 months and finally broke through the trendline, only to see a pullback back to the trendline. It has support at the trendline at 98 and today’s doji suggests that the support may have been found. Look to buy above today’s high of 102 with a stop below 95 for a target of 130.

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Happy Investing!!!