Medium Term Technical Call - An Air Pocket Before Another Descent — A Storm In The Making: Ambit

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Medium Term Technical Call -  An Air Pocket Before Another Descent — A Storm In The Making

Technical Analyst: Ashish Shroff;

• On December 28, 2010 we highlighted that the Nifty in 2011 would target 5400 and close CY2011 in the red.
• Now that the Nifty has hit 5400, where do we go from here? The selling which we saw in January has not completed its bear wave counts and hence we believe that the last leg of the Nifty’s fall is still to come. Therefore we expect another round of selling to begin and the Nifty to target 4780.

--  As per the Elliot wave, in Dec 2010 the Nifty completed its 5-wave upmove.
 In January 2011, the Nifty fell more than 10% and retraced the 23.6%
retracement of the rise from the low of 2252 in October 2008 to the high of
6338 in November 2010.
 So in the month of January 2011, the Nifty achieved 5400 but the index did
not complete the bear wave count as the Nifty completed the “Y” wave but
the “X” bounce wave and the “Z” down wave are pending. After almost
testing 5600 last week, we now expect the index to begin the new round of
selling, which will target 4780. 4780 is also the 38.2% retracement of the
2252 to 6338 rise.
 We still expect CY11 to be a negative year for Indian equities and from
hereon (5520) the index could fall another 13%. Hence we advise traders to
remain short, (stop loss) as long as the index is below 5780 (50%
retracement of the fall from 6338-5177). The monthly MACD of the Nifty
has triggered a SELL after 36 months. The last time it triggered a sell was in
February 2008 and that year the Nifty fell 65% from its high of 6357 in
January 2008.
 This year we do not expect such a significant fall (as in 2008). This year we
expect the index to only retrace until 38.2% retracement of the Bull Run,
which is 4780 i.e. a 13% fall from the current level (5520). We expect the
BSE Metal index to be a key driver of the coming fall (details on next page).



SELL BSE Metal Index
 Momentum oscillators for the Metal index are turning to sell mode on the
daily, weekly and on the monthly charts.
 The RSI is trading in SELL mode but at a neutral level.
 Metal stocks on the monthly chart are now in SELL mode whereas the other
sectors triggered the SELL mode in January.
 We expect the Metal index to breach its earlier resistance level (which is now
its support level) at 14650 and then target 13500.
 We recommend that traders take short positions in Metal stocks.
 Our Best Sell picks: Tata Steel and Hindalco