Market Set for New highs?

Saturday, May 17, 2008 | | |

The Nifty closed in the green with a gain of 3.5 %, on a weekly basis, after some zigzag trades in the first three days. The next week contains four trading days only. The Nifty opened at 4,981 and made a low of 4,913.80. The Nifty attained a high of 5,167.40 and closed almost near to the high, at 4,157.70. The stock specific action was also part and parcel of the week. Volumes improved gradually in all segments. The concern is that the Nifty May Futures traded continuously with discount and widened to double digit, which is indication of continuous built up of short positions.
We mentioned in the last week`s write up 4,916 is likely to be a good support. The Nifty touched 4,913.80 and reversed its direction. The Nifty is expected to make once again an attempt to breach the long-term averages like 100 and 200 day SMA. The success of the attempt will make the Nifty to move in northward direction further. The Nifty crossed 5, 10 and 20 day SMA comfortably and closed well above these averages. The 5-day SMA turned upwards, which is a positive sign. The 10-day SMA is testing the support at 20 day SMA. The Nifty closed above the crucial 13,34 and 89 EMA. Both the stochastic are in the buy mode. However, the 5,3,3 stochastic is nearing to the overbought level. The RSI once again generated a fresh buy signal. The swing trade turns to positive side from the negative side. The ADX is in buy mode. All these indicate there is no major threat to the prevailing short-term bull trend. The higher bottom formation also supports this view. The PSAR in the daily charts is placed at 5,167.40.The MACD is converging to generate a fresh buy signal. Further up move, if any and the cross over happened in the above both cases, will add strength to the ensuing rally.

So far, the Nifty is forming a lower top and higher bottom formation since the January, 08 fall. The break out on either side will be more powerful. As mentioned, the Nifty had a good support at 4,916 (with 1% variation) on many fronts. (The 50-day SMA, the trend line support drawn from the March 2008 low, 0.382 retracement support (from 4,468 and 5,299) Interestingly, the pattern is same as in October 2004, on many fronts. The previous pattern formation is also supporting the above statement.

In the weekly charts, still we are in amidst of mixed signals. The 5,3,3 stochastic is in sell mode and breached the 80 mark also. The swing trade became neutral now. The ADX is in sell mode. The RSI is in buy mode. The MACD is converging to generate a fresh buy signal (Kindly note that the same scenario on daily charts also). If both things happen, the rally should be more powerful and the medium term outlook too becomes bullish. The medium term trend is neutral, with a slighter probability of becoming bullish.

In the monthly charts, the MACD is in a sell mode. However, the bottom of 4,448 is becoming a strong support. Any decisive breach, will initiate a fresh down movement. The 20-month SMA is giving a good support since May 30, 2003 on a closing basis, which is currently placed at 4,662.59.In the quarterly charts, since October 2003, the Nifty is trading above PSAR. For this quarter it is placed at 4,448.50.

Outlook for the week

Short term bullish trend to continue with intermediate resistance around 5,400 level. Based on the above rationale, the Nifty is expected to see some more upside in the short term. On many fronts, the Nifty is near to the multiple resistance levels near to 5,400 levels. For this week, the Nifty has support at 5,126, 5,072-5,099 (strong for the short term), 4,952 and 4,901 (multiple support level). The Nifty has resistances at 5,167.40 (PSAR and may be a break out point), 5,195-5,228 (minor resistance), 5,247 (trend line), 5,298, 5,368 and 5,395-5,415 (intermediate resistance).

Hold your long positions and create fresh longs above 5,167.40. Consider profit booking 5,395-5,415 levels. Rotate stocks.