Edelweiss Technical Reflection (ETR) 8 Feb 2011

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Edelweiss Technical Reflection (ETR)

§  Fridays sharp decline was halted by an absolute range bound session that ended on a flat note. Nifty traded below the 21-hourly EMA (5445) which poses as an immediate resistance. A ‘harami’ candlestick pattern has been formed on the daily chart that indicates a change in the short-term trend is imminent. Oscillators on the daily chart are near oversold territory and are showing positive price/momentum divergence, indicating a loss of downside momentum. Market breadth continued to favour declines but has improved from Friday’s carnage; while the Nifty 50 stocks A/D turned bullish 1.5:1. The index needs to hold above the 5350 support and trade consistently above 5445 to confirm a short-term trend reversal that can test the 200-SDMA at 5625. A failure to hold 5350 support will lead to a sharp decline towards 5200.

§  Short-covering and bargain buying led to few positive sectoral moves. Realty shares were the biggest beneficiary followed by FMCG and Oil & Gas shares. Cap Goods shares continue to decline on lack of buying support, and Healthcare stocks shed some more weight.

Bullish Setups: Petronet LNG (PLNG), Tata Steel (TATA), BPCL, Renuka Sugars (SHRS) 

Bearish Setups: Ambuja Cements (ACEM), Mahindra & Mahindra (MM), Tata Power (TPWR), GAIL

§  US and European equity indices are stretching the gains of the previous week. SPX is headed towards the 1330 resistance mark, and the FTSE probes the yearly high of 6090. DXY made a ‘hammer’ candlestick pattern on the weekly chart last week nailing a trading bottom at 77, targeting the 50-DEMA at 79.15. LME index (LMEX) is scorching towards the 2007 high of 4556, with gains coming from Copper and Nickel.