Edelweiss Technical Reflection (ETR) February, 10 2011

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Edelweiss Technical Reflection (ETR)

§  The selling spree continued for the second session in a row as the Nifty lost 1% for the day. The selling activity picked up steam after mid-day as stocks fell across the board on heavy volumes. The last half hour witnessed some short-covering that avoided large scale damage for the index. Volumes in yesterday’s session were above the 5-day average indicating long liquidation. Momentum oscillators continue to point lower despite being in oversold territory suggestive of the bear grip that the market is in. Market breadth continued to be strongly favour of the declines; and the Nifty 50 stocks A/D was at 1:2, an improvement from previous day. The index is making lower tops and lower bottoms on the daily as well as weekly chart indicative a of strong downtrend in the medium term. We expect the Nifty to retrace the 2009-10 upmove upto 38.2% at 4780, and at least test the 5150 in the near-term. On the upside rallies towards 5400 is likely to find strong selling activity.

§  The broad based selling took its toll on all sectoral indices as Power sector lost the most at >4%, followed by Metals and Realty. IT and Banking shares outperformed the market with marginal declines. India VIX has tested the 26% mark and retraced. However on a close above 26, will trigger a market panic and vols can reach 28 mark. 

Bullish Setups: Fortis Healthcare (FORH), HDFC, Kotak Bank (KMB), L&T (LT) 

Bearish Setups: RCOM, Hindalco (HNDL), Tata Motors (TTMT) Balrampur Chini (BRCM)

§  US and European equity indices are stretching the gains on weakening momentum increasing the risk of a sharp correction in the near term. LME metals are witnessing profit taking correction after a strong rally, raising the risk of further downside.