The markets have played out in the hands of two events for last three days, firstly the bears and secondly the technicals. It is a question of what came earlier – the markets or technicals. At some stage of life they both have intertwined so much with each other that it is frankly extremely difficult to tell. Well – still all the same they have atleast given us the opportunity to see how the markets will shape out. The FIIs at the moment seem to have become a major problem. They are sucking out liquidity out of the system and the DIIs can never catch up. It may so happen that the DIIs also give up and what a day it will be. Hope that it will not come in a hurry. In any case I will stop babbling about all this and get to the task at hand. All the same before I begin with reading of the data – we have at the moment some not so news around us. A semi agrarian society at the best that relies on monsoons have deficit monsoons. A population of a billion plus having less than good health facilities – with Swine flu knocking in the backyard. Enough to give anyone jitters. Add to it a pint of Chinese bubble about to go bust etc. A perfect recipe for disasters on the markets. Not that if all goes well it matters – then a single statement that this has been factored in in the markets will see it through – but unfortunately that is not the case. So except trouble in the short term.
As far as the global cues are concerned – things were poised for a bounce – and a strong one at that. All the same Nikkei ended 1.08% green, Hang Seng 2.72% green and Strait Times was closed. Europe opened red and made a half hearted attempt to recover but apart from FTSE – none did. FTSE closed 0.68% green, DAX red and CAC red 0.75% and 0.47% respectively. US opened red – tried to recover but has since sunk deeper red. DOW is presently 0.48% down, Nasdaq down 0.67% and S&P 0.53%. They do have a lot of time in hand to attempt a recovery – we will have to see it at their close tomorrow.
The candle today was another black one – though it is not a perfect ‘three crows’ bearish pattern – it is very close to it. As far as this pattern is concerned expect some more down turn. We have already violated the middle of the Bollinger bands now all we have to do is to test the bottom of the bands. 3 EMA has crossed below the 15 EMA and has generated a sell signal. Volumes were low – lower than yesterday at 79% of the 50 day average. ADX had already generated a sell signal and remains weak. If it comes above 20 then – at the moment it will give strength to the bears. MACD has generated sell. RSI generated sell signal and Slow stochastic bearish. Only small caution with the Slow Stochastic is that %K line has entered oversold. Does not really matter as of now but will build up in time to come.
Options data now has a good amount of call writing going on so be prepared for a painful recovery if any. The way 4700 calls are being build up – forget reaching above it for this expiry. If meaningfully 4400 is broken tomorrow then a run up (or may I say down) to 4300 is quite possible.
To summarise the global cues have turned weak. Majority of technicals I follow on the charts have generated a sell signal. Would be ideal to sit tight on shorts and till there is some kind of turnaround – no longs. Option data does not suggest extreme of sentiments but call build up is going on. It will be a time before options meaningfully sway the markets. As per the options the levels to watch out for are 4700 on the up side and 4400 and 4300 on the down side. (4400 if breached – likely to force option sellers to cover or hedge positions – helping the market fall)
So to wrap up Ideal strategy is to go and remain short. Stoploss for shorts is 4624 and stoploss for those carrying longs is 4474. For the day go short below 4519 and long above 4519.
| MARKET SUMMARY |
| Indicator | Bullish/Bearish | Sell/Buy Signal | Nifty level at signal | Points gained/lost since | Remarks |
| 4437 |
| HARAMI | Bearish | Sell / 04 Aug | 4681 | 244 | |
| 315 STRATEGY | Bearish | Sell / 10 Aug | 4437 | 0 | |
| ADX | Bearish | Sell / 07 Aug | 4481 | 44 | |
| MACD | Bearish | Sell / 10 Aug | 4437 | 0 | |
| RSI | Bearish | Sell /10 Aug | 4437 | 0 | |
| Slow Stochastic | Bearish | Sell / 05 Aug | 4694 | 257 | |
| Options | Neutral | - | - | - | |
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