Sun 19th June: Are we heading towards 5200 levels ????

India’s Inflation rose to a higher than expected 9.06% in May, highlighting the limits of successive rate increases in taming price rise and raising the central bank’s monetary tightening cycle could now run longer than previously thought. High inflation is something that India will have to live with but our outlook on India is more constructive than the consensus at present.

Domestic equities are likely to trade with a weak bias next week on lingering nervousness that Greece may default on its sovereign debt and on concerns over slowing recovery in the US economy China’s Central Bank raised the reserve ration by 50bps on Tuesday for the ninth time since Oct to curb inflation, which is running at its fastest pace in almost three years.

The market is not doing well due to fears that Greece may default on its debt and US economy is slowing down. Also, inflation is still a lingering concern, and continuous rate hikes by the central bank will keep corporate earnings weak in coming months. So all in all, it’s a bleak situation for India Inc and the markets.

Indices tanked more the 2% in a week. Midcap stocks closed down 1.2% while Smallcap Index 1.4%. IT Index closed down 4.45%. Bankex 1.1% after the 0.25bps bike in the Repo Rate. Oil & Gas down nearly 5%, Auto Index 2%. Ril ind was one of the major losers in the Nifty Index which tanked nearly 8.2% in week, after rumor’s that there is some problem in the books of the Company and some gas issues. IDFC closed down 10%, Wipro 6.5% while Tcs closed down 6%. On the other side ADAG stocks gained. Rcom surged 3%, Ril Infra 6.5% and Bpcl 3.5%. On the Midcap side A2Z surged 20%, Sks Micro fin gained 16%, Philips 11%.

As mentioned in the earlier article also, that the Indian markets are under pressure and we may witness selling pressure in the coming week. Nifty below 5450 levels looks weak to me. And it happened the same. Nifty close down at 5366 levels.

On Tuesday, I had posted an article about the Nifty on www.technicalsvishaldangaich.blogspot.com. Attached with that was the chart of the Nifty which clearly indicates that there was no hope for the Nifty to close above 5600 levels and the Nifty will continue its downtrend. The Article states “NIFTY: Will the Nifty extend its lossing streak, to complete the Head & Shoulder Pattern. Yes I think so!!!!

Head and shoulder pattern is in the formation of the Nifty Daily price chart. That indicates that the Nifty may tank below 5300 levels to make a low of 5177 or lower than that also. But Historically we have seen that Nifty finds good support and resistance levels at 5200 levels, so decesive break out below that only can decide the trend below that.

If we check Nifty levels through Fibonacci Theory from the High of 6338.50 (5^th Nov 2010) to 5177.70 (11^th Feb 2011). Nifty bounced back to find stiff resistance at 61.8% retracement levels and since then its been falling. Nifty on its downward movement, took support at 23.6% retracement levels for sometime only. Now, after some rally, Nifty faced resistance at 38.2% & once again it is at the 23.6% retacement levels. Close below the same will take the Nifty to 5350. Close below 5350, we may see Nifty at 5200 levels very soon.

Upside movement in the Nifty is capped as off now. Break out of the H&S pattern seems to be difficult. There are more bad news than the Good news in the mkt. 0.25-0.75 bps rate hike is on the cards in the near future, as the inflation is very high. For upside movement Nifty should close above 5600-5620 levels. “ See chart NO. 1.

On Wednesday Nifty closed below its 23.6% retracement levels, its 5DMA and 20DMA also triggering panic selling in the markets. Selling was seen in the frontline stocks where RIL Ind closed down at its 52 week low.

I still feel that the markets are in a Bear grip and the Nifty can come down to 5200-5177 levels. See Chart No. 2.Bank, Automobile and the Real estate stocks should further weaken as the rise in the Inflation is still a major concern in India that may lead to more rate hike in the near future.

Last Weeks Call

Sell Bajaj Auto below 1320 SL 1331. Did not trigger the sell price

Sell Hero Honda below 1713 SL 1724. Made a low of 1708. SL triggered.

Sell JSW Steel below 898 SL 902. Made a low of 861.

Buy Punj Lloyd above 66.20. Made a high of 72

This weeks call

Sell Acc below 959 SL 963.

Sell Andhra bank below 132.80 SL 133.80.

Buy Bharti Airtel close above 385 SL 380.

Sell Cipla below 328 SL 331.

Buy Hind Petro above 390.