MARKET TREND FOR TUESDAY, NOVEMBER 22, 2016
Monday’s session remained firmly in grip of bears as the
NIFTY took a sharp cut and ended at 6-month closing lows. We refer our Weekly
Note wherein we had mentioned “….On the Weekly Charts, the NIFTY has closed below (outside) the lower Bollinger
Band. This has several implications. Though Bollinger Bands individually do not
generate buy or sell signals, if it is read along with RSI, it throws up
powerful readings. In NIFTY’s case, the NIFTY on the Weekly Chart has closed
below (outside) the lower Bollinger Band and with the RSI above 30, (39.3661),
there are fair amount of chances that the current downtrend continues……” Though
this was expected later in the week, it came too soon and too fast on Monday. Importantly¸
this also leaves us with what is also known as “selling extremes” wherein we
get a big bar with the Markets that are anyways oversold sees itself ending
itself near the day’s low with average or higher than average volumes. This
“potentially” marks a temporary bottom; though this needs confirmation on the
following day.
For today, the levels of 8005 and 8065 might act as
immediate resistance levels if a imminent pullback occurs. Supports exist at
7905 and 7850 levels.
The RSI—Relative Strength Index on the Daily Chart is
22.5195 and it has reached its lowest value in last 14-days which is bearish.
However, it does not show any bullish or bearish divergence and it remains
“deeply oversold”. The Daily MACD stays bearish while trading below its signal
line.
On derivatives front, the NIFTY November futures have shed
over 8.03 lakh shares or 4.60% in Open Interest. The December futures added
over 27.65 lakh shares or 128.71% In Open Interest indicating huge net addition
in Open Interest. This shows great addition of shorts in the system and the
NIFTY PCR stands below 0.75 indicating oversold levels.
Coming to pattern analysis, with yesterday’s cut, the NIFTY
not only went beyond its technical measuring implications that occurred upon
its breaking the falling channel drawn from 8968 levels, it went on to breach
the 200-DMA and its filter as well. However, while doing so, it continued to
get “deeply oversold”. Furthermore, as mentioned above, the current formation
has market what is known as “selling extremes”. Though this is a potential
indication that a pullback / reversal may occur this needs confirmation on the
following day.
All and all, one more important thing that needs to be taken
note of is that it is the expiry week and off late the Markets in general and
NIFTY in particular has never been so deeply oversold and it has rarely
displayed such oversold readings. With the given amount of short and these
readings, a technical pullback remains imminent. We strongly recommend not
creating any major fresh shorts and in event of continuing decline,
participation in the Markets should be avoided. While maintaining and
preserving cash levels, an imminent and long-overdue pullback should be
expected.
Milan Vaishnav, CMT
Technical Analyst
(Research Analyst, SEBI Reg.
No. INH000003341)
Member:
Market Technicians Association, (MTA), USA
Canadian Society of Technical Analysts, (CSTA), CANADA
Association of Technical Market Analysts, (ATMA), INDIA
http://milan-vaishnav.blogspot.com
+91-98250-16331
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