On January 30, 2008 the US Federal Reserve cut the interest rates by 0.5%. This followed the 0.75% interest rate cut on January 22.
It is usually believed that the Fed rates have ‘positive effects’ on financial markets. Despite the 1.25% drop in interest rates in eight days, the Indian stock markets were not ‘cheering’ up!
Forget the news, remember the chart!!
Just to prove this point, take the case of Wire and Wireless India Limited. It has been making consistent losses since its listing. From 139.75 it fell to 30.30 in about 9 months between January/October 2007. But it bounced back strongly to hit 107.40 by December 2007. Why would the crowd be interested in buying the shares of a loss making company?
WWIL was included in Futures & Options segment effective November 30, 2007. Was this news a real positive? It can be seen that the stock ran up expecting one.
Coming back to the Nifty analysis for this week, the daily chart suggests that the index has not broken the 61.8% retracement line considering a high of 6357 and low of 4449 though it managed to gain 179.80 points (3.50%) on Friday. Wave ‘c’ is in progress. Note that wave ‘b’ has retraced 50% of the fall.
The Nifty is likely to get corrected some more. As mentioned during the previous review, 4449 is the last support. Let’s wait for a reversal sign to confirm that wave ‘c’ has ended. The lower side volatility during the last couple of weeks is very high. This can be seen from the long lower shadows. There seems to be some ‘bottom fishing’ but generally it has to be ascertained from trendlines and candlestick patterns whether the market has bottomed out. One positive factor is that this week’s trading range has completely fallen within last week’s range (also called inside day pattern). Once this is formed, a possibility of a breakout on either side could be anticipated. One can expect the upper side since the trendline has not been broken yet on the weekly chart.
On the long term charts, still there is no sign of a reversal – a bearish engulfing pattern was missed by merely 2 points. Index managed to test the 50% retracement around 4496 but it remains to be seen how it performs this month. In the absence of reversal signals, one can expect the bullish trend to continue.
During the week 38.36% of the stocks advanced while 60.49% declined. 1.14% remained unchanged.
Top 5 notable gainers were SELMCL, GUJNRECOKE, MICROTECH, PRITHVI and TATAMETALI while top losers were ELECON, HMT, DCW, ABGSHIP and KALPATPOWR.
To conclude, the Nifty is bearish for short term but still bullish for medium term.