Sunday, January 9, 2011

BSE Review 7th Jan 2011

Index Outlook — Market buckles under pressure

Lokeshwarri S.K.

Sensex (19,691.8)

The week began with the Sensex nervously perched at 20,500, eyeing soaring commodity prices. Stock prices started sliding by Tuesday led by banking stocks that were battered due to the recent spate of hike in bank deposit rates. Acceleration in food inflation proved to be last straw and the benchmark collapsed 492 points on Friday to end the week below 20,000.

Volume gathered pace towards the weekend as stocks started selling. FIIs too turned net sellers and DIIs joined them in hammering down stock prices on Friday. Open interest is surprisingly low at 1, 32,000 crore. Index put call ratio close to 1 also denotes that traders are not able to make up their minds on the direction in which the index will move in the days ahead.

The week ahead will be heavy on news-flow with India Inc. beginning to present its third quarter score-card. IIP and WPI numbers that are scheduled to be announced next week will also add to the ongoing debate on RBI's next move on monetary policy.

Friday's sell-off has roiled the momentum indicators in both the daily and weekly time-frames. 10-day rate of change oscillator has declined to the negative zone while the 14-day relative strength index is at 41, implying a bearish short-term bias. The bearish engulfing candle in the weekly candlestick chart too denotes that the weakness could continue in the upcoming weeks.

Sensex failed to live up to the promise of moving to a new high in the early part of 2011 though many of its Asian counterparts have managed to do so. Reversal from the peak of 20,665 last week implies that the downtrend that began from 21,108 in November continues to be in progress.

Last week's definitive move has however made the short-term trajectory of the index clearer.

The most obvious count is that the third leg of the down-move from 21,108 is unfolding now with the targets of 19334, 18512 and 17689. The area between 19,000 and 19,200 will be a strong support and it is possible that the index rebounds after a brief dip below this band.

A strong close beyond 20,300 next week is required to mitigate this bearish short-term view and pave the way for rally to 20,685 or 21,338.

The week ahead is likely to be rocky with the index facing strong resistance at 20,022 and 20,264.

Inability to move above the first resistance can make the index decline to 19334 or 18955. Relentless selling pressure will give the outer target at 18,512.

Source : BusinessLine

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