Edelweiss Technical Reflection (ETR) 31/1/11

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Edelweiss Technical Reflection (ETR)

§  After closing below the 200-SDMA, the index witnessed follow through selling on Friday. Critical short-term supports of 5550, and 5500 were breached, and the index closed the week with a huge loss. A ‘bearish engulfing’ candlestick pattern has formed on the weekly chart and on previous two occasions since the fall in November, the following week has ended with losses as well. The long-term rising trend line support has been pierced as well as the declining trend channel has been breached indicating a breakdown in the long-term trend. All momentum oscillators are indicating a slide. Market breadth turned strongly in favor of declining stocks; and the Nifty 50 stocks A/D ratio continues to be weak at 1:4. For the week, the area around 5350-5400 should provide enough support to arrest the fall, however in case of a failure to do so on a daily closing basis, the index is likely to drop down to the 38.2% retracement of the 2009-2010 bull market at 4800. Alternatively, rallies upto 5650-5700 should be used to reduce long positions and initiate trading shorts.

§  Once again sectoral indices witnessed broad-based selling. Realty sector was worst hit with ~5% drop. Auto shares and Cap Goods shares also witnessed a sharp sell-off. FMCG and Technology stocks outperformed the market decline. India VIX is on the verge of a bullish head & shoulder breakout that has a target of 31.75. An uptick in volatility is a barometer of market correction. Bullish Setups: SESA, FORH Bearish Setups: HH, CNXBANK, IIB, ONGC, UT, ACEM, MSIL

§  Global indices have entered a phase of correction with sharp declines on Friday. Major US and European indices have triggered a sell signal on oscillators. Initial targets are at the 50-DEMA.

§  Interesting chart setups: PLNG, TCS, HH, ACEM, UT