Edelweiss Technical Reflection (ETR) March 8, 2011

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Edelweiss Technical Reflection (ETR)

§  In the new week, Nifty opened with a gap down and sustained the fall in the first half of the session. However the second half witnessed some covering from 5400 levels but the ‘bearish gap’ remained open posing a threat to the short-term uptrend. The index has taken support at the 20-DMA (5415) and bounced from there suggesting the short-term up trend is intact. The formation of higher tops and bottoms has been violated and the previous up move is getting corrected. Hourly MACD maintains the bearish crossover but stays above the zero line i.e. a hope for a recovery for the bulls. Daily oscillators on the other hand are now signaling mixed trends. Market breadth was strongly in favour of declining stocks. Nifty 50 stocks A/D ratio was at an adverse 1:4.5. We continue to maintain the short-term uptrend as long as 5400 remains inviolate on a daily closing basis for a test of the 200-DMA at 5650. On a break below 5400 (daily closing), the index can slide down to 5200-5000.

§  Yesterday’s strong move resulted in secular decline in sectoral indices. Auto and Cap Goods shares fell the most (>2%), followed by Realty and Banking. Defensives FMCG and Healthcare witnessed marginal declines. The recent bullish formation on the Bank Nifty remains valid till 10300 remains inviolate. Bullish Setups: RPower (RPWR), Hero Honda (HH), REC (RECL), Shriram Trans (SHTF), Bearish Setups: TCS, Maruti (MSIL), LT, HCL Tech (HCLT), Renuka Sugars (SHRS)

§  US and European equity indices saw a sustained selling yesterday reinforcing the short-term downtrend with momentum oscillators rolling bearish. Expect a move down to the 50-DMA where initial support will emerge. DXY has reached critical support range of 76-75.90 from where a sharp pullback is likely, which could trigger declines in risk assets across the globe. Gold & Crude Oil have retracted from yesterday’s highs, whereas Copper has clearly moved into a corrective phase.