Retail Research - HDFC Securities

Weekly Market, Sectoral And Stock Perspective – Technicals Oct 19, 2012
Market View
Markets are stuck in a narrow trading range. Considering that the technical indicators are weak, the odds seem
higher of a break down. Many of the sectoral indices too are showing weak signals. Further weakness is likely once
the supports of 18549/5633 are broken. Be however prepared to change your strategy if there is a break out on the
upside.
NSE Nifty Daily Chart
Markets stuck in a range
After correcting from a high of 19137/5815 touched in early Oct 12, the week gone by saw the Sensex/Nifty stuck
in a narrow trading range of 18549-18886/5633-5729. The main indices finally ended 0.04/0.14% higher.
Technical state of the market
Indicator Used/Pattern observed
Market Strength
Volumes, Market breadth
Comments
W-o-W volumes were lower on both the
BSE/NSE. This was probably due to the range
bound action seen during the week as traders
preferred to stay out of it.
Market breadth was positive in three out of the
five trading sessions of the week, which
indicates that the bulls were slightly more
dominant.
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Technical state of the market….contd.
Indicator Used/Pattern observed
Comments
Trendiness
ADX, Moving averages, Parabolic SAR
The range bound action seen this week has led
to the 13-day SMA flattening out and trading
near the Sensex/Nifty.
The main indices nevertheless remain in an
uptrend on all time frames (Short Term,
Intermediate and Long term). The Sensex/Nifty
continue to remain well above the 13-week SMA
(Red line) and the 200-day EMA.
The weekly ADX readings have taken a breather
after rising from oversold levels. The Daily ADX
readings too have corrected from above 40
levels, which indicates that the short-term
uptrend is matured, and warrants caution (See
chart on 1 st page).
Volatility
Bollinger Band, Average True Range
(ATR)
The Sensex/Nifty reacted from an upper band of
the 20-week Bollinger Band last week. This is
not a very positive signal as it implies that the
index could now move towards its mid-band.
The 20-day Bollinger Bands have also narrowed
reflecting the range bound price action seen this
week. As narrow ranges are usually followed by
an expansion of the trading range, we can
expect a breakout/breakdown of the 18549-
18886/5633-5729 ranges soon.
Momentum
14 Day RSI, MACD, Stochastics
Though the intermediate and long-term
momentum indicators have eased in the last
two weeks (14-week and 14-month RSI), they
remain in uptrend and are not overbought,
thereby giving healthy indications for the
intermediate and long-term trend. Short-term
momentum readings are however in decline
mode with the 14-day RSI breaking its previous
lows of 57.03 and trading below its 9-day EMA.
The MACD too is trading below its 9-day EMA
thereby indicating slow down in momentum and
giving weak signals for the short term.
Outlook
With the Sensex/Nifty trading in a narrow range between the 18549-18886/5633-5729 levels in the last one
week, traders now need to know in which direction the markets are likely to break out of this range. With most of
the technical indicators like the Moving averages, ADX readings, Bollinger Bands, momentum readings giving weak
signals, the odds do seem higher of a break down from this narrow range. Furthermore, most of the sectoral
indices too are looking weak for the short term, which further increases the odds of a breakdown.
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Weakness is therefore likely to accelerate once the recent lows of 18549/5633 are broken. In this scenario, the next
downside targets for the Sensex/Nifty are at 18291-17972/5534-5448.
Having said that, traders need to be prepared for an upside breakout of this week’s narrow trading range. Buying
Banking stocks seems like a good bet, as the BSE Bankex is one of the technically strongest sectors. In the scenario
of a breakout, it is however quite likely that the breakout may not sustain and the Sensex/Nifty may fail to cross
their recent intermediate highs of 19137/5816.
Here are the key levels to watch for the coming week;
Trading Strategy: Markets are stuck in a narrow trading range. Short term traders can trade in the direction of
the breakout of this range. Considering that the technical indicators are weak, the odds seem higher of a break
down. Be however prepared to change your strategy if there is a break out on the upside.
Action Points Sensex Nifty Action
Current Close 18682 5684
Immediate Resistances 18886-18969 5729-5752
Close above 18886/5729 could
give bulls an upper hand
Immediate Supports 18549-18423 5633-5607
18549/5633 are the ST
Reversal Levels
Further Downsides 18291-17972 5534-5448
Further Upside Targets 19137-19698 5816-5907 Previous intermediate highs
Stock Pick – Short Chambal Fert
Chambal Fert has been making lower tops and lower bottoms for the last few weeks. On Friday, the stock
broke the 69.25 supports.
Technical indicators are giving weak signals as the stock trades below the 13-day SMA and the 14-day RSI is
in decline mode and below its 9-day EMA. The MACD indicator too is in decline mode and trading below its
9-day EMA thereby indicating slow down in momentum and giving weak signals for the short term.
We recommend a short and our entry levels are between `68.40-69.50. Stop loss is at `70.50, while
downside targets are at `64.20. CMP is `68.45. Holding period is 3-5 days.
Note: Once the market opens for trade, the analyst will review it and decide to give the call through an internal
mail/SMS at the same or different levels of entry, target and stop loss or not give the call at all. Clients could get in touch
with the analyst through their designated dealers to check about this.
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Sectoral studies
Indices
Last
close
W-o-W %
Chg
ST/ IT/ LT trend
BSE FMCG 5902.0 2.6 ST, IT & LT up
BSE Cons Durab 7333.8 1.9 ST, IT & LT up
BSE Small Cap 7169.8 0.8 ST, IT & LT up
BSE Banks 13193.1 0.8 ST, IT & LT up
Comments
At Lifetime Highs.
ST Momentum OB.
STR at 5654.
At Lifetime Highs.
ST Momentum OB.
STR at 7401.
Reacted from Upper
Band of weekly Bollinger
Bands.14-day RSI
giving divergence
signals
Stocks likely
to outperform
ITC, HUL
Consolidating in a range
Canara Bank,
between the 12917-
Bank of Baroda
13320 levels.
BSE Sensex 18682.3 0.0 ST, IT & LT up
BSE 500 7214.0 0.0 ST, IT & LT Up
BSE Mid Cap 6671.6 -0.1 ST, IT & LT Up
BSE Auto 10249.3 -0.2 ST, IT & LT up
Made a lower top,
Momentum weak.
STR at 10178
Stuck in a range
BSE IT 5700.4 -0.5 ST Down, IT & LT Up between the 5651-5758
levels.
Unable to cross the
BSE Healthcare 7520.6 -0.7 ST, IT & LT Up 7650 resistances.
Momentum weak.
BSE Power 2018.3 -0.9 ST, IT & LT Up
Found resistance at
2058. Below 13-day
SMA. 14-day RSI and
MACD in decline mode.
BSE Capital Goods 11068.9 -1.0 ST, IT & LT up
In consolidation mode.
STR at 10942.
BSE Oil/Gas 8437.2 -1.2 ST, IT Up & LT Down
Could slide down
towards trend line
supports of 8400
BSE Realty 1844.2 -1.4 ST, IT & LT Up
BSE Metal 10351.4 -2.5 ST, IT & LT Up
Closed below Mid-Band
of 20-week Bollinger
Bands. Momentum
readings are also weak.
ST = Short Term, IT = Intermediate Term, LT = Long Term, OB = Overbought, RSC = Relative Strength
Comparative, STR = Short Term Reversal Level, SMA = Simple Moving Average
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BSE Bankex Daily chart
BSE Bankex is consolidating in a
range with a positive bias.
BSE Power Index Daily chart
Reacted from the 2058 resistances.
Below 13-day SMA and momentum
readings like MACD and 14-day RSI
are in decline mode.
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Analyst: Subash Gangadharan (subash.gangadharan@hdfcsec.com)
HDFC Securities Limited, I Think Techno Campus, Building – B, “Alpha”, Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves,
Kanjurmarg (East), Mumbai 400 042 Fax: (022) 3075 3435
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