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Pullback over - Approaching yearly lows again!
Amid all the uncertainties prevailing in the global financial arena on the
lingering concerns about the Euro zone debt crisis, the domestic equity
benchmarks did post a pullback towards late October 2011. However, as
evident from the current slide, the pullback proved short lived as it turned
out to be just a relief rally after stagnating in a narrow range for nearly
three months and hit a swing high of 5399.
In our Technical Report titled “Index at crossroads’’ dated September 29,
2011, we had appositely envisaged a pullback attempt panning out after
the index hit a 52-week low of 4720. We had argued that the index will
respect the yearly lows of 2010 (4675) initially and stage a pullback to
retrace the previous fall (5740 to 4720) and then turn back to retest its 52-
week lows.
The Nifty behaved precisely in line with our expectation and recorded a
swing high of 5399 in late October 2011, which turned out to be the
61.80% retracement of the previous fall and a re-test of the 200 day SMA.
It has remained on a steady downward spiral since then.
Now the index is within an arm’s length distance from its 2010 lows
(4675). We, therefore, take a fresh look at the long-term charts as post
violation of the yearly low on a sustained basis there is a strong
possibility of the benchmark heading towards the 4200-4000 range. In this
report we present historical evidence of the past three instances when
breach of previous year’s lows triggered a larger price and time
correction.
Breach of yearly lows may trigger larger price and time damage
Over the past two decades, there have been three major instances when
the index breached its previous yearly lows. Each of these events
triggered jitters in the equity markets and led to a steeper correction.
In the current scenario, so far the index has been defending year 2010
lows (Sensex: 15652, Nifty: 4675.40). A decisive breach of these lows
would result in price damage of at least 15-20% going by empirical
evidence.
Major sectoral indices have already breached their 2010
lows…benchmarks to follow suit
Earlier during 2011, many sectoral indices and broader markets, as
represented by the midcap and small cap indices, have breached their
2010 lows. Since then, they have been reeling under continuous selling
pressure.
Capital goods, oil & gas, metals and realty indices have been
underperforming along with the midcap and small cap segments over the
past few months (as shown in Exhibit 6) since they breached their 2010
lows making a strong case for the benchmarks to follow suit.
Among other important sectors, banking and IT are very close to their
2010 lows. The recent selling pressure is likely to get accelerated if the
2010 lows are decisively breached.
Going by this evidence, we believe it is only a matter of time before the
benchmarks also follow suit and breach the yearly lows
Post break-down scenario: Likely to head towards major support zone
in 4200-4000 range
Post violation of the earmarked supports of the 4675-4750 range, the next
floor for the Nifty is placed in the range of 4200-4000 levels based on the
following technical observations:
• The golden Fibonacci ratio of 61.8% of the entire rally from March
2009 low (2539) to the November 2009 high (6338) is placed around
3990
• The rising gap-up area of the only upper freeze in the history of Indian
equity markets is placed in the region of 3918-3710
• The major support trend line connecting the low of June 2003 (920)
and December 2008 (2252) projects support around 4000 over the next
two quarters
• Time wise, we have observed that whenever the index has breached
its prior year lows, it has spent six to 12 months in a base formation
before any meaningful rally could take place
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Pullback over - Approaching yearly lows again!
Amid all the uncertainties prevailing in the global financial arena on the
lingering concerns about the Euro zone debt crisis, the domestic equity
benchmarks did post a pullback towards late October 2011. However, as
evident from the current slide, the pullback proved short lived as it turned
out to be just a relief rally after stagnating in a narrow range for nearly
three months and hit a swing high of 5399.
In our Technical Report titled “Index at crossroads’’ dated September 29,
2011, we had appositely envisaged a pullback attempt panning out after
the index hit a 52-week low of 4720. We had argued that the index will
respect the yearly lows of 2010 (4675) initially and stage a pullback to
retrace the previous fall (5740 to 4720) and then turn back to retest its 52-
week lows.
The Nifty behaved precisely in line with our expectation and recorded a
swing high of 5399 in late October 2011, which turned out to be the
61.80% retracement of the previous fall and a re-test of the 200 day SMA.
It has remained on a steady downward spiral since then.
Now the index is within an arm’s length distance from its 2010 lows
(4675). We, therefore, take a fresh look at the long-term charts as post
violation of the yearly low on a sustained basis there is a strong
possibility of the benchmark heading towards the 4200-4000 range. In this
report we present historical evidence of the past three instances when
breach of previous year’s lows triggered a larger price and time
correction.
Breach of yearly lows may trigger larger price and time damage
Over the past two decades, there have been three major instances when
the index breached its previous yearly lows. Each of these events
triggered jitters in the equity markets and led to a steeper correction.
In the current scenario, so far the index has been defending year 2010
lows (Sensex: 15652, Nifty: 4675.40). A decisive breach of these lows
would result in price damage of at least 15-20% going by empirical
evidence.
Major sectoral indices have already breached their 2010
lows…benchmarks to follow suit
Earlier during 2011, many sectoral indices and broader markets, as
represented by the midcap and small cap indices, have breached their
2010 lows. Since then, they have been reeling under continuous selling
pressure.
Capital goods, oil & gas, metals and realty indices have been
underperforming along with the midcap and small cap segments over the
past few months (as shown in Exhibit 6) since they breached their 2010
lows making a strong case for the benchmarks to follow suit.
Among other important sectors, banking and IT are very close to their
2010 lows. The recent selling pressure is likely to get accelerated if the
2010 lows are decisively breached.
Going by this evidence, we believe it is only a matter of time before the
benchmarks also follow suit and breach the yearly lows
Post break-down scenario: Likely to head towards major support zone
in 4200-4000 range
Post violation of the earmarked supports of the 4675-4750 range, the next
floor for the Nifty is placed in the range of 4200-4000 levels based on the
following technical observations:
• The golden Fibonacci ratio of 61.8% of the entire rally from March
2009 low (2539) to the November 2009 high (6338) is placed around
3990
• The rising gap-up area of the only upper freeze in the history of Indian
equity markets is placed in the region of 3918-3710
• The major support trend line connecting the low of June 2003 (920)
and December 2008 (2252) projects support around 4000 over the next
two quarters
• Time wise, we have observed that whenever the index has breached
its prior year lows, it has spent six to 12 months in a base formation
before any meaningful rally could take place
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