Hold Long Positions With Stop Loss At 15 SMA...

By Dominic Rebello

Review of the Previous day: The Nifty fell moderately on Friday (October 21, 2011) a net 41.95 points (0.82%) and closed at the 5049 point level. The market opened up with a gap at the 5106 points level. It then declined into the red but soon recovered and registered the day’s high at the 5120 points level at 11.06 a.m. It then declined and turned into a range bound movement until 2.15 p.m. The index then declined sharply into the red on disappointing numbers by L&T, Idea and JSW Steel and registered the day’s low at the 5037 points level at 3.11 p.m. It then rose and turned into a range bound movement until closing at the day. The Nifty witnessed a choppy session and moved in a range of 83 points. Sentiment was bearish and amongst the 50 Nifty stocks, 33 were losers, while 17 were gainers. All the sectoral indices barring consumer durables closed in the red. Heavy selling was witnessed in realty, capital goods and metal stocks.

Technical Analysis:

Volume (Qty shares) decreased 6.68%. This change is small and indicates a moderate participation by investors

Market Breadth: Overall Market Breadth on the NSE was negative. Amongst all the traded stocks, 519 were gainers, 898 were losers and 63 remained unchanged.

Slow Stochastic Indicator: The Slow Stochastic Oscillator has risen in the over-bought zone. The Slow K line in the Stochastic Oscillator is at the slow D line (neutral).

RSI Indicator: The RSI is above the 40 level but is now declining (negative if it continues).

MACD Indicator: The MACD is above zero and is turned flat (positive if it rises). It is above its 9-day Average (positive).

ADX Indicator & DI Lines: The +DI line is above the –DI line and both lines are diverging (positive if it continues). The ADX is falling while the Market Index is falling, which indicates that the present down trend is decreasing in strength.

Moving Averages (Trend Indicators)

The index:

Is below its 5-day average (at 5087) Negative.

Is above its 15-day average (at 4993) Positive

Is above its 25-day average (at 4994) Positive

Is below its 200-day average (at 5425) Negative.

Overall Market Strength/Weakness: The indicators and oscillators discussed here are indicating a strong market but with a negative bias.

Support Levels: For short-term traders the immediate main support is at 4690 marked as S1.
The next support is at 4450 marked as S2.

Resistance Levels: The immediate main resistance is at 5240 marked as R1.
The next resistance is at 5360 marked as R2.

Pivot Point Analysis: For intra-day traders the support and resistance levels are calculated according to the pivot point theory and are:

Pivot point = 5070 (This is the level where the trend is likely to change during intra-day).
Support (1) = 5018.
Support (2) = 4987.
Resistance (1) = 5101.
Resistance (2) = 5152.

(For support and resistance levels all F&O stocks refer to the Afternoon
Newspaper or Click here)
Outlook for Today: On Japanese candlestick patterns the index after having formed a doji pattern (indicating indecisiveness amongst investors) has formed a black body candle. This is negative and indicates that the bias has shifted towards the sell side of the market. Further, the index is below the 5 and 200 days moving averages. Both these indicate a negative bias.
However, the index is still above the 15 and 25 days moving averages. Further, despite the decline in the previous two sessions, the velocity parameters continue to remain positively trended. Both these indicate a positive bias. Investors are advised to hold long positions but with a strict stop loss at the 15-day average at the 4993 point’s level.

Work with strict stop losses on all positions.