Edelweiss Technical Reflection (ETR) § 5 April 2011

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 Edelweiss Technical Reflection (ETR)

§  The markets were in a cheerful mood right from the start until the end of the session as it surpassed and closed above 5900 for the first time in nearly three months. Despite a break in Friday’s session the index rallied yesterday to extend the breakout achieved a couple of weeks back from the low of 5350. It has retraced 61.8% of the Nov-Feb correction, as well as achieved a bullish crossover of 21 and 50 daily EMAs. The daily momentum oscillators have now entered a short-term overbought territory whereas the hourly oscillators are showing signs of negative divergence. Market breadth reached a bullish extreme and so did the Nifty 50 A/D ratio at 4:1. Nifty has now reached a zone of multiple resistances between 5900-5940 and along with a combination of momentum weakness, volume slackness and extreme A/D readings; it is strongly advisable to lighten up on long positions. One could also look at initiating speculative shorts with a stop-loss above 6000 for a test of supports at 5800-5700. In the event of a breakout of the falling trend line resistance of 5940, Nifty can further extend the rally towards 6100. But this remains a low probability case under current technical setup.

§  Stocks from the Cap Goods, IT and Auto sectors strongly outperformed the market, whereas Realty, Healthcare and FMCG shares lagged the market advance. As Bank Nifty is one the verge of completing the 61.8% retracement of the Nov-Feb decline at 12000, it is recommended to book profits there.

§  Bullish Setups: Tata Steel, BHEL, Suzlon (SUER), SAIL, Renuka Sugars (SHRS)

§  Bearish Setups: Asian Paints (AP), HUL, RCOM

§  WTI Crude Oil has clearly signaled a breakout by moving above $106.95 and should now target $120. USD-EUR consolidates below its crucial breakout point 1.432 that will eventually trigger a global risk asset rally.