Indices correct quickly; bounce back expected next week
If anyone had watched Indian television channels over the last two days, he would have been amazed to see how many theories were floating around about the fall of the indices.
- US Sub-prime mortgage crisis may have ‘continued to effect’ Indian stock markets;
- The appreciating Japanese Yen may have made the hedge funds to offload their holdings in emerging markets;
- Possible political uncertainty may ‘worry’ the markets.
Which of these theories is correct, only time will tell. However, we saw previously that these are reasons that media finds to justify corrections or collapses in indices.
Let us now examine the technical scenario of the index in daily and weekly charts.
In the last week’s review I wrote that “the level of 4310 needs to be watched on a close basis. A close below this will make the index more sluggish during pullback rally.”
Nifty closed at 4108 on Friday, losing 225.30 points or 5.20% for the week.
We anticipated a reversal this week. On Monday, the index managed to gain 40.30 points. Tuesday was flat – a “doji” was formed. Though Nifty lost a meagre 3.45 points, the trading session provided some clues for Thursday as total selloff was witnessed, with Nifty losing 191.60 points. On Friday too, index was once again deep in red; but some buying came in around the middle of the session which could be due to possible covering of short positions or technical rally due to oversold levels in hourly charts. Nifty touched a low of 4002 but managed to close 106 points higher at 4108.
In the daily chart of Nifty, watch the waves 1 through 5 during the uptrend. It took 31 sessions for the index to reach 4648 from a low of 4101 (5th wave). But it has quickly fallen back to those levels now, utilizing just 17 sessions. Fall has been pretty sharp, with three sessions losing more than 3.50%. Just compare this with the fall between February and March this year. Index fell from a high of 4245 on February 8 to a low of 3555 on March 5. There were three trading sessions that lost more than 3% during the correction. But the Nifty bounced back from 3555 to 4648 as disscussed above.
We still maintain that this correction is healthy and there is no real need to panic. We have been seeing huge dips in index since the beginning of the bull run; but these corrections have only helped the Nifty to make new highs. So there is nothing to worry about the Nifty as of now.
However, one has to remain cautious on select stocks and sectors, which we discuss every now and then.
It can be seen in the daily chart that corrective wave ‘a’ and pullback wave ‘b’ appear to be complete. Now wave ‘c’ is in progress. Apparently, Nifty has broken critical short term supports at 4218 and 4101. Importantly, there are no reversal signs yet.
In the weekly chart shown below, the index has managed to break 38.2% retracement levels; it is almost on the verge of breaking 50% level too. Index has corrected for 4 weeks in a row, the last one being the worst fall. This week’s low was 4002. But Nifty has managed to close just above 50% retracement at 4108. Possibly this could be a reaction to oversold levels in hourly charts. 61.8% retracement works out to 3972 and this the level we now need to watch out for. For the target of 4935 for the nifty to be achieved, hopefully, this level should hold.
Considering all these factors, a bounce back for the nifty is expected this week; but the level of 3972 remains critical.
IVR Prime got listed on August 16. It opened at 456.25 with a negative premium of 94. From its issue price of 550, the stock has fallen to 413.55. The India Street maintained ‘avoid’ in short term for the IPO.
Advance/Decline Ratio:
| Date | Adv. | Dec. | Unch. |
| 13-Aug | 796 | 311 | 24 |
| 14-Aug | 575 | 533 | 29 |
| 16-Aug | 137 | 985 | 13 |
| 17-Aug | 225 | 888 | 20 |
Top Gainers / Losers among Index stocks:
| Scrip | % Gain | Scrip | % Loss |
| SUNPHARMA | 2.25 | TATASTEEL | 14.26 |
| TATAPOWER | 2.10 | STER | 12.66 |
|
|
| VSNL | 10.56 |
|
|
| HINDPETRO | 10.04 |
|
|
| SUZLON | 9.37 |
In my previous article “Stock of the week: Videsh Sanchar Nigam Limited VSNL” we discussed about the bearish trend in the stock.
Top Gainers / Losers in overall market:
| Scrip | % Gain | Scrip | % Loss |
| JENSONICOL | 41.32 | INDIABULLS | 14.71 |
| LML | 40.28 | ORBITCORP | 14.32 |
| ASSAMCO | 27.66 | GTLINFRA | 14.27 |
| NAGARFERT | 24.28 | ALPA | 14.20 |
| JAICORP | 21.55 | PATNI | 14.14 |
Jenson & Nicolson is a case of bear trap. LML and Jai Corp are known for one priced “dojis” and upper freezes. Assam Company had 4 upper freezes this week with one single priced doji. Nagarjuna Fertilizers is The India Street’s long term pick.