Nifty: August 2013

NIFTY VIEW FOR WEEK 5th August 2013 - 8th August 2013
A relatively small week of trading, we personally believe that there will be some kind of a pause. The holiday mood might be there and no major move might be seen. Even on the result's front, we have BHEL on 4th August 2013, Lupin and Ranbaxy on 8th August, 2013 as the major one's. The market looks oversold, especially the Bank Nifty. Some kind of a pull back might come, but it is to early to expect anything as the market has really broken supports which everyone expected to bounce at some time or the other. We rode the 5800PE from 67 to 170 (Booked) and currently have no positions. Next week or the monday after that, we expect some writing in options and the premium values will fall. This is on our view of a flat and consolidating market. Again, we will look for some indicators to decide if it actually will be flat.
For a clear view, let's have a look at the weekly chart of NIFTY.

Now, the weekly line chart of the NIFTY presents a few interesting cases.
i) A potential Head & Shoulder Pattern with the base at 5500-5530 zone,
ii) Violation of a medium term rising trendline which opens the targets to the long term rising trendline which will act as a support at 5550 levels.
We had mentioned earlier that we don't expect 5500 to break, so these supports add up the strength of the 5500 zone. But we have then seen NIFTY break all supports with ease, will this break too? Wait & Watch.

On the daily charts, NIFTY is at a rising trendline support and on past 3-4 occasions, it has shown strength from these levels, will it again this time? The upside of this consolidating triangle is at 6030 levels. If we close above 6030, then it will be a very bullish indicator, if we break the support, we have a minor support at 5630 and below that 5500-5550 range is a crucial zone. If we turn the chart upside-down and have a look, the range of NIFTY has been consolidating. It is a bullish consolidation, it is an early indicator of a big move coming. No speculation from our side on the targets. The atmosphere is very bearish, and pessimism and negative outlook is generally the first leg of a bull market.

After correctly predicting July's close, my prediction for August series is: We shall close below 5730 on Spot.

Despite negative news about the Food Security Bill, Indian markets have been able to sustain their higher levels. Dollar has started cooling down but the steps taken to cool it have had a negative impact on the banking sector which has witnessed a sharp decline. Everyday some or the other bank is losing 7%-8% but despite all this, NIFTY has shown comparative strength and is still above it's 200DMA. First, let's have a broader look at the market.

 CNX500 is the best index for analyzing the broader trend of the market. The CNX500 is forming a head and shoulder pattern with the downside coming to 4450. The gap of 4400-4450 also creates a strong support at this level. As the gap is still not filled, the index might go down to 4400 levels. If 4400 breaks then the 4300 is the last support of the bullish trend. The breaking of 4300 will signal a bear market. The momentum has turned negative and the Smoothed RSI also signals that a downside remains open. The moving averages have squeezed the index downwards. The 50DMA has broken below the 200DMA which shows that in the coming month, there won't be any significant rally. Another interesting point is that the CNX500 has formed a "Three Black Crows" pattern, the pattern last occurred on 20-21-22 May and that showed the TOP of the previous rally. The occurrence of the same pattern now creates a bearish view. The pattern has also occurred in NIFTY this week.

The above is a weekly line chart of NIFTY made on basis of closing price of each week. It shows a head and shoulder pattern formed with lower base at 5750 levels. This makes our belief that the gapp in 5700-5750 range will be filled. Also, a rising trend support exists at these levels which means that on a weekly basis we should be closing above 5750 every week. On charts, NIFTY is bullish as long as 5500 holds.

On the daily charts, we see the "Three Black Crows" candles formed which means that lower levels are open. Also, the index is getting in the squeeze zone as the 21,50&200MA all exist in the 5820-5920 range. On the upside, the resistance for NIFTY is at 6050 levels. If 6065 breaks then levels till 6250 opens up. However, the most interesting phenomena to watch will be the bottom of the current downtrend. if NIFTY doesn't break the previous pivot low of 5550, then the chances of a new high remain open. We currently don't expect a downside below 5500 levels.

Another interesting sector to watch now will be the AUTO sector.
The above is a daily chart of the CNX AUTO index which is consolidating and is squeezed between the moving averages. The range of the consolidation is 4370-4650. The index will show sharp movements when one of the level breaks. The oscillators also indicate a flat movement. We will get some good trades once this index starts moving. High or low? We don't know yet.

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