Trojan Horse...?

Major Indices :: Sensex : 16739 : Nifty : 5037

Intermediate Trend: Sideways Key Technical Levels: 17271- on the upside, 16781- on the downside In the previous review, when the Sensex was at 16739, we had stated “the uptrend is intact, the Sensex is likely to achieve target of 17020-225 , probably, in this week itself; any close below 16111 will warrant profit booking; those who have invested on our bullish calls near 14833 must have yielded good returns". The Sensex moved as per our expectations and hit our target area of 17225 exactly(actual high 17271). The movements were also confined to the parallel channel drawn on the daily charts. Friday's rally of over 400 points, was good set back for the bears, but suspect a 'manipulative' rise rather than guanine buying interest by the bulls. Is it (rally) going sustain further? I am skeptical. The recent rally could turned out to be a "Trojan horse" in the bulls camp. The reasons for this bearish views are a) The Sensex has already achieved our target with 17% rise in 5 weeks, b) It is (sensex) very close to the upper end of the parallel channel drawn on the daily charts, c) On the monthly charts (see Sensex monthly chart in our report dated 25th March) the Sensex has given a "pull back" rally after a deceive break of the long term support line. The current value of this support line is near about 16800; and one needs a monthly 'close' above 16800 to prove that the rally was not a pull back but a genuine bullish action. Hence it is profitable to play defensive and "take profit" at this stage of the market and avoid any aggression on the bullish front. The benefit of doubt should be given to the bears than bulls. Any close below 16781 will trigger the bear dominance, once again, and in that eventuality a fall (minimum) upto 16100-16220 looks imminent. On the positive note, a close above 17271 i.e. yesterday's high, is critical for the bulls. If done on closing basis, the Sensex can flare upto 17400-17660, i.e. upper end of the parallel channel, where expect selling pressure. On the Global markets, bears may surprise the bulls after a good rise of 12.8% in the Dow Jones, 14.9% in FTSE, 25.7% in HangSeng & 19.6% in Nikkei, since their respective "troughs" in January 2008.

Bulls are in trouble...

Dow Jones (12891)

In the previous review (12825) we had stated “As expected, the Dow had breached a barrier 12800-12840;now expect profit booking if failed to sustain above 12470; else, a slow and time consuming rally towards a target of 13200-13220". The stop of 12470 remained untouched. Equally the trading was confined to a small range of 12600-12950. Apparently the markets look calm and range bound. But a closer look on the charts, specially long term, reveals a worrisome picture. When the Dow was trading near 11900 area, I had stated that, even though the street is extremely bearish, the Dow may not fall in strait line hereafter, and may take good support to the recent low of 11500. Since then it has rallied and posted 12%+ returns since the low of Jan 08. However, right now, the Dow is trading (and struggling to float) near a sensitive zone of 12900-12990, which is also a 50% retracement level of the entire fall from 14278 to 11507. Normally bear market rallies ends near 50% correction levels. Failure to overcome this resistance area (near about at 12990) will provide an excellent comeback opportunity for the bears. Further, on the weekly charts, there is a "Hang Man" formation on the candlestick charts. Which, by definition, is a bearish reversal pattern. On the flip side, a strong close, above this candle formation (a weekly close above 12987) will negate the bearish implication, all together. If it does so, then (only) expect a further rise up to 13200. On the downside watch 12604, a revised stop for the bulls.

Target 9200..

BSE Bankex (8580)

The Banking index has suffered a loss of 42% {from the high of 12678 (Jan08) to 7316(Mar08)} in just 45 trading sessions; worst performance vis-à-vis broader markets. Since mid-March, the index has consolidated (5 weeks) and in the process formed a “triangle” formation on the daily charts, which depicts a “accumulation” by the strong hands. Decisive break form the “triangle” suggests a upward thrust, may be up to 9200 in the near term. The sector has already suffered a lot, in a short span. Hence a sharp fall, may be on potential bad news could turned out to be a “good” buying opportunity for the long term bulls, rather than selling. Stop near about 8100.

Setback....

Setback... Major Indices: Sensex : 16739 Nifty : 5037 Intermediate Trend: Bullish – Stop 16111 Key Technical Levels : 17020- on the upside; 16390- on the downside

In the previous review, when the Sensex was at 16153, we had stated “post triangle breakout the control has been shifted in favor of the bulls & the intermediate trend has turned bullish; expect systematic buying instead of ‘euphoria”; near term target 17020 and then 17225”. As perceived, the Sensex has moved up, cautiously. This rise was a complete setback for the bears. The actions were stock specific and the bulls were determined to turn the table. Our near term target of 17020-225 remains unachieved due to truncated weekend. The same will be achieved, probably, in this week itself. Normally, any “trend” ending with a ‘triangle’ formation gives a sharp ‘thrust’ on the opposite direction of the breakout. Here, the thrust is on upside. We have already witnessed a rally of more than 1200 points in the last 5-6 trading sessions. This could be a tip of iceberg, if the bulls successfully defend the level of 16390 in the next few trading sessions. Else, the entire week could see a consolidation between 16600-16190, before deciding further course of action. We remain bullish on the Indian equities for the short term as well as for the medium term; a near term target for the Sensex is placed at 17020-17225. Daily close below 16111 will warrant profit booking with a neutral view (Short term). The action for the week will be more of stock specific and non-index components may witness sharp rebound. Overall, very fertile period for the bulls, especially those who have formed incremental longs since our buy call (partial) at 14833. BSE Bankex (8580) The Banking index has suffered a loss of 42% {from the high of 12678 (Jan08) to 7316(Mar08)} in just 45 trading sessions; worst performance vis-à-vis broader markets. Since mid-March, the index has consolidated (5 weeks) and in the process formed a “triangle” formation on the daily charts, which depicts a “accumulation” by the strong hands. Decisive break form the “triangle” suggests a upward thrust, may be up to 9200 in the near term. The sector has already suffered a lot, in a short span. Hence a sharp fall, may be on potential bad news could turned out to be a “good” buying opportunity for the long term bulls, rather than selling. Stop near about 8100.

12800...our target acheived

Dow Jones (12825)

In the previous review (12302) we had stated “even after 300 point fall, our stop of 12164 remains untouched & intermediate trend remained bullish; despite of strong negative sentiments it is (still) trading above 11500 for the last 2 and half months; expect a sideways trading if failed to breach the strong resistance of 12841”. As expected, the Dow had breached a barrier (12800-12840, marked with dotted lines) in the last week. Now expect profit booking if failed to sustain above 12470; else, a slow and time consuming rally towards a target of 13200-13220.

Control Shifted....

In the previous review when the Sensex was at 15757, we had stated, “Wounded bulls are in retaliation mode, the odds are in favor of the bulls, expect a fierce battle in the range of 15300-16450 before shifting of the control, decisively”.

Since 28th March, the Sensex was moving in narrow range of 16500-15300 (shake out zone). In this process, it has formed a triangle pattern on the daily charts. (See chart). Yesterday, its has given a upward break out with a strong thrust beyond 16000. As anticipated, now, the control has been shifted in favor of the bulls with Intermediate trend turning bullish. Stop 15655.

When the Sensex was trading at 14677, we were vouching for a bullish trend & advised investors to buy on every sharp decline. The strategy has proved correct & yielded 10% gains, so far. Now expect a continuation of the intermediate uptrend with an initial target of 17020 and then 17225. However, instead of euphoric buying expect a systematic rise with stock specific actions.

Conclusion: After a long & fierce battle, the bulls have taken a control over the market, at least in the near term. As long as 15655 remains protected, the market will be in the hands of bulls. Long term investors may reduce their cash positions in favor of frontline stocks. Expect an initial rise up to 17020 and then 17225 in the next 2-3 weeks.

Nikkei gained 15%

On 18th March, when Nikkei was trading at 11787, we had stated that “While concluding a 13 years bear market (Since 1990-2003), the Nikkei made a low of 7603 in Apr 03. Subsequently it has climbed to the recent high of 18300 (Feb 07) and started its decline. Yesterday, it has made a low of 11691, which is exactly on 0.618% retrenchment of the entire rise from Apr 03 to Feb 07; Technically, 0.618 is the “golden” ratio, and if the fall is arrested, in couple of weeks, near about 11400-600 levels, we may see a revival, at least for the time being, in one of the weakest market in the world” Since then, 11691 remained untouched and Nikkei has moved up to 13485, in a 4 week long rally, before correcting to present levels. A rise of neat 15% in 4 weeks, when the street was beating the “chest” with recession in US, rise in crude prices, global inflationary pressure etc. Further, in the process the Nikkei has also broken (upward) a falling parallel channel, drawn from 17488 (Oct 07) on the weekly charts. A fall below 11691 will unfold a disastrous scenario for the bulls. However, even though its little bit premature to say, the long term charts are pointing towards a bull market in Japan in the near term. As of now, the bulls are in consolidation faze, after a 15% gains. They will regain the control, once surpassed the recent high of 13485, within the next 3-4 weeks. On the downside 12430 is a strong support for the bulls, a close below this will turn the tables in favor of the bears, with probability of re-test of the recent bottom of 11691.

Stop at 12164 remains untouched

Dow Jones (12302)

In the previous review (12609), we had stated, “intermediate trend is bullish, stop 12164. Once the Dow clears the strong resistance of 12815-841, expect a good rally may be up to 13225; however the rise will not be fast but slow and steady amid with corrections in between”. Since last review, the Dow has corrected with more than 300 points fall. However, it is still above our stop of 12164. Despite of a strong negative sentiments, it has manage to trade well above 11500 (Jan low) for the last 2 and half months. We expect the Dow to move in a sideways faze, unless and until there is a close above 12841. Till such time, it will continue to move 4 days up & 3 days down, creating confused environment. However, once it closes below 12164, the things will became much more difficult for the bulls to come back and control the show. Before that, a close below 12280 will be the first indication of weakness.

Uptrend!

Dow Jones (12609) : Intermediate trend : Bullish

In the last review (12216) we said “In spite of straight 4 loosing trading sessions, the extremely near term picture, above 12077-11951, remains bullish; a close below this, will open the fresh bearish move, may be to the “last resort” level of 11500; On the upside 12815-12841 remains a challenging area for the bulls.” The Dow indeed remained firm, and snapped the 4 days loosing streak with a gains of almost 400 points, since our last review. In the process, the intermediate trend has also turned positive, Stop at 12164. On the upside, once the resistance area of 12815-12841 is taken, the bulls will attempt to climb further, may be upto 13225. However, the rise will not fast and furious but slow and steady, with ongoing corrections lasting for 1-2 days.

Wounded Bulls are in retaliation mode…

Major Indices: Sensex : 15757 Nifty : 4761 Intermediate Trend: Sideways Key Technical Levels: 16452- on the upside; 15300- on the downside In the previous review when the Sensex was at 15644, we had stated, “downside is restricted up to 14677-14500. “Smart money” is active on the buy side and Shake out process (towards recovery) is on; Long term investors should buy around 25-30% of equity on every dip”. As expected, literally, the Sensex has shaken out the investor’s confidence with wide swings. It has surpassed our initial target of 16111 (actual 16236); equally failed to close above 16111 and then tumbled to 15300(slightly down from our “key” level of 15350). Despite of strong adverse sentiments, negative hype by media, confusing “statements” by major players, the Sensex seldom tested its previous low of 14677. Even though the sentiments were favorable (for bears), the bears had failed to push the markets towards a new low. That itself is the first indication that the bulls are fighting and actively protecting their turf. The clear trend is likely to emerge, after the completion of this shakeout process. Odds are in the favor of the bulls (80%). Expect a fierce battle in 15300-16450 area, before shifting of the control, decisively. Anything below 15300 will weaken the bull’s fire power (read short term stop). However it’s unlikely to happen, given the circumstances (described in our last few reports since Sensex touched 14677). Further, the bullish counter attack will not gather required strength, if the Sensex failed to surpass 16452 in the next 5-7 trading sessions. Once done, the bears will get slaughtered. Conclusion: Intermediate trend will turn bullish, once 16452 surpassed on closing basis. In the extreme short term, again, expect 15300-50 to act as a (last) support, if holds then first target for the bulls is to close above 16452 & then 17020. Even if the bulls manage to close this week above 15950, its better.

Rate of Inflation Vs Sensex

Last week, there was a hue and cry after the figures of rate of inflation was revealed. The media and analysts were active in predicting its impact on the markets and on (poor) Sensex, which already has shed around 30% of its value since Jan 08, for various reasons. Has high rate of inflation is really a worrying factors for the bulls?? Study of the movements in rate of inflation vis-à-vis Sensex, since the start of Bull run in 2003, reveals some stunning results. Look at the following chart:- Whenever, rate of inflation is at its peak, the Sensex, invariably, & notoriously, makes a “trough” rather than ‘top”. At least for the last 5 odd years, a spike in rate of inflation is giving stimulations for the fresh up move. Will it be different this time, when we are already down 30%?? If not, please don’t shoot me.

Dow and Gold

Dow Jones (12216) : Intermediate trend : Sideways

In our last review we did mention “The Dow has strengthened the short term position and expect a rise up to 12815-41 with a firm support placed at 12077-11951 area”. The Dow touched a high 12687, as against 12815, and slipped with loss of 4 consecutive trading sessions, tested a low of 12164(support 12077). In spite of these 4 loosing trading sessions, the extremely near term picture remains bullish, above 12077-11951. Only a close below this, will open the fresh bearish move, may be once again targeting the recent low of Jan 08 (11500) which is also the “last resort” for the bulls. On the upside 12815-12841 remains a challenging area for the bulls. From the macro level, the world over, the debate is continuing about the “fate” of Dow. There is a big fight between doomsayers and optimists. Logically, (if) in case of recession in US, the Dow should crash to sub 10k levels or even below that. However, there is another concept of “relative” performance of the Dow vis-a-vis other Economies/asset classes. Look at the comparison between Gold prices and Dow since 2000. The gold prices moved from 100 (base) to 350 in the last 7 years, while the Dow is (still) languishing near the base line. In short the Dow is trading that of Dec 99 prices of gold. While at the same time “emerging markets” have outperformed the gold in the given time zone. Has the “slowdown/recession” in US already been discounted in price? If so, then the Dow may not witness vertical fall, but may remain lackluster in a broader trading ranges, for the near term.

“Shakeout” is on…Advantage Investors…

Major Indices :: Sensex : 15644, Nifty : 4942 Intermediate Trend :: Sideways Key Technical Levels :: 16111- on the upside, 15350- on the downside In our last review, when the Sensex was at 15289, we had stated, “Prima facie, the downside is restricted. The bulls will have their “say” only when the falling channel (see chart) is broken on the upside. If surpassed, the next target will be 15873-16064”. As expected, the Sensex decisively broken the falling channel and flared up to 16452, over and above our targeted area. For the last 2 weeks, after the Sensex created a recent low of 14677, we have been vouching for the selective buying (25-30%) in frontline stocks, on every fall/sharp intraday cuts. We will continue to do the same, in future also, with protecting longs near 14500-14600 levels (intermediate stop). As far as extremely short term trend is concerned, the equations are still favoring the bulls, provided the Sensex holds itself above 15350-15465- short term stop (gap up opening area). From medium to long term perspective, the downside seems to be protected near the recent low of 14677-14500. The recent run up of almost 12% in the Sensex indicates the “Smart money” is active on the buy side. Typically, these “strong hands” create a sharp volatility and nerve wracking environment, to “accumulate” the stocks at reasonable levels and push away the “weaker hands” out of the market. Yesterday’s fall of over 4% was an ideal example of this “shakeout” process. One can survive and digest these sharp swings, only if one is having broader horizon of investment. Traders can wait, till the situation becomes less risky. Conclusion: Intermediate trend is yet to confirm bullishness; downside is restricted up to 14677-14500. In the extreme short term, expect 15350 to act as a support, if holds then first challenge for the bulls is to close above 16111 & then 16683.