Feb 11, 11: Edelweiss Technical Reflection (ETR)

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Edelweiss Technical Reflection (ETR)

§  The index continued the drop for third session in a high volume increased volatility session. In the earlier half, Nifty broke below the 5200 mark but recovered smartly in the second half to close above it. On Bollinger Band analysis, Nifty is trading at the lower band and hence at every decline is witnessing frantic covering, indicating low downside risk from current levels. Additionally the momentum oscillators are showing signs of positive divergence on oversold conditions suggesting loss of downside momentum in which case a pullback rally is a high probability. Market breadth although in favour of the declines has improved smartly from previous day; and the Nifty 50 stocks A/D was neutral at 1:1. Based on the price, momentum and market breadth setup, the risk for the market on the downside is limited to 5145 (channel support), whereas a case of a strong pullback rally towards 5400 (10-DEMA) is higher in the short-term. In case of a forceful break below 5150 on high volumes, the downside momentum will resume which will extend the decline down to 4800 (38.2% retracement of the 2008 – 10 rally).

§  Sectoral trend were mixed as Auto, Power and Pharma shares registered decent gains, whereas IT, Telecom and Realty stocks suffered losses. BSE Realty index seems to have made a short-term bottom at 1980 with a ‘bullish hammer’ on daily chart. A rebound towards 2300 is in the offing. 

Bullish Setups: Fortis Healthcare (FORH), PTC (PTCIN), Kotak Bank (KMB), L&T (LT), Unitech (UT) 

Bearish Setups:Ambuja Cements (ACEM), Tech Mahindra (TECHM), BHEL, TCS.

§  US and European equities are getting vulnerable to downside risk as the momentum wanes near key resistance levels. DXY has clawed back previous days’ loss as the weekly bullish hammer candlestick pattern will keep the focus higher.