Nifty Weekly Technical Outlook for 15 June’15

Stock market is a reflection of an economy, and price is a reflection of state of healfishermanth of economy.  As Martin Pring noted in his book, all price movements have one thing in common: They are reflection of the trend in the hopes, fears, knowledge, optimism, and greed of market participants. The week passed by was nightmare for hardcore bulls and rejoice for bears, however I believe that ratio of bulls should be higher in compare to Smart Bears. In hindsight, move of Thursday was a trap for small fish (read as retail participants) by Fisherman (read as FII’s and few large institutions). Once again last week set an example for us, and we should learn from that, and restrict ourselves from committing same mistakes again and again.

nifty technical weekly view 15 july way 2profits, nifty positive divergence

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  • The week gone by was full of action packed, on Monday & Tuesday market had a fear that MSCI will include china, on Wednesday as a surprise China was excluded for time being and Indian market cheered on that news and rallied, on Thursday market snapped away all the gains and butchered not only fresh bulls, but even many participants who had a feeling that 8000 is a very strong support for the market, below which market has not closed in last eight months time frame, and lastly on Friday Nifty made a fresh low of 7940.30, however closed marginally above Thursday’s close at 7982.90.
  • As mentioned above, in hindsight Wednesday’s move was clearly a Bull Trap and many retail participants was victim of the same, while Big Boy’s created fresh shorts at higher levels.
  • Derivative data has indicated something unusual happening on Wednesday, as there was significant reduction in options contract and to some extent even in Nifty contracts, which was not common phenomena when for expiry you have 14 days left. Also Volatility Index continued to hover below 18 levels, which was also not indicating some panic button to trigger. All said and done, it was not expected that market will fall significantly from higher levels, but unfortunately it does.
  • As mentioned in earlier newsletter that Bank Nifty was showing some resilience in this fall, even on Thursday Nifty swiftly breached below its last month’s swing low of 7997, Bank Nifty was still holding above its swing low of 17246, however on Friday that Bank Nifty also broke the swing low support, while in the last hour of trade some pullback was witnessed which took Bank Nifty higher and finally closed with gains of 1.27% on closing basis. Importantly week on week basis, Nifty closed with a loss of 131.80 points or 1.62%, while Bank Nifty closed with a loss of 25.70 points or 0.14%, in that sense Bank Nifty is still showing some divergence.
  • Technically, price action in Nifty and momentum is showing divergence. As depicted in attached chart Nifty formed three swing lows at (1) 8269.15 (2) 7997.15 * (3) 7940.30 and 14-period RSI’s reading at this lows were, 30.04, 31.80 & 36.12 respectively, which clearly indicates positive divergence between Price and RSI and similar pattern was evident in Bank Nifty as well.
  • From last four weeks USDINR is trading in a narrow range, where it is not moving above 64.37 and at the same time forming weekly higher lows, indicating that factor of Rupee depreciation still looms around for Equity markets.

After looking at most of possibilities, it is time to conclude and say how to position yourself in the coming week. First and foremost, if you are already holding a short position then let me congratulate you as I believe you must have acted at right time and at a right price, and you are very smart and seasoned player of the market, and following the market with right discipline and action; for you I would suggest hold your position keeping stop loss above 8050 mark if you are very short term player and keep trailing stop loss by 25 points as prices move in your favor. Now, if you wish to create fresh position, then you should consider selling at higher levels near 8160 to 8200 levels, where actual shorts should be created, one may part in with two trades one near 8120 and another to average at 8180 level, keeping stop loss above 8240 levels. For aggressive traders you may consider to create long position at CMP keeping stop loss of Friday’s low 7940 for upside target of 8060-8070 levels. Don’t think I am giving contra view here, but that is how market is placed at this point in time, creating short at this juncture will not fetch you required returns, alternatively, if Nifty breaks below 7940 create fresh short with stop loss of 7985 for the downside target of 7800.

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