India F & O Market Weekly Review

In my previous post we discussed about the possibility of a rally in the Nifty and its likely upside target of 3435. I had also mentioned that a confirmation is necessary in the daily/weekly charts for bullish reversal.

Nifty made a high of 3241 on November 5 but a bearish "three outside down" candlestick pattern (bearish engulfing pattern followed by a redcandle and lower close) was also formed. This indicated a bearish reversal in daily chart. Nifty closed higher for the next two days but for the last 3 sessions it has closed negative. MACD and Wilder's DMI both favour bearishness on weekly chart.

External factors like falling crude prices (from $147 per barrel to $57 per barrel) have not made any impact on Nifty. Readers may be aware that while Nifty went up from 1000 in 2003 to 6300 in January 2008, crude prices were also going up, from approximately $30 per barrel to $100 per barrel. So it is only the demand/supply forces determine the Nifty and its trend.

Let us now discuss the futures contracts of Nifty, Bank Nifty, Bharti Airtel, Infosys and Reliance. It is to be noted here that the charts are based on data for November contracts. The Open Interest is shown as green line.

Nifty:

The October 2008 contracts for Nifty expired on 29/10/2008. Few days prior to this, selling was witnessed in the November contracts as prices declined. This indicates a sell off. On 28th October Muhurat trading was conducted and hence the volume was low. We can see a healthy uptrend in futures since rising prices were accompanied by rising volumes. However, similar to Nifty (Spot), a three outside down candlestick pattern was formed, confirming the bearish reversal. When prices rose afterwards, volumes declined; this was followed by falling prices and rising volumes. After the 'healthy' uptrend, volumes should have ideally fallen when prices fell. This would have meant bullishness. Now that the volumes are rising with falling prices, we may conclude that the Nifty future is likely to test its lower support of 2207.

Bank Nifty:

We can observe a similar pattern in Bank Nifty too. However, no candlestick formation could be observed at the top of the uptrend.

Bharti Airtel:

Two huge "falling windows" or "downward gaps" were observed prior to the uptrend. In this case too, a bearish three outside down candlestick pattern was formed with a downward gap on the third day and increased volume. There is some sell off occurring over the last few trading sessions.

Infosys:

The most recent high of 1414 remains a strong resistance. The contract is now moving on a sideways pattern. The volumes are also inconsistent. This means that the market is currently undecided over the direction. Interesting to note that the sideways movement started on October 10, well before the expiry of Nifty October contracts.

Reliance:

The "falling window" formed on October 16 is acting as a strong resistance for the stock futures. Similar to Bharti Airtel, a three outside down pattern with a downward gap on the third day was formed. Rising volumes and falling prices over the last 3 sessions indicate sell off.

Conclusion:

Current technical scenario suggests that Nifty's bearish trend is likely to continue for the medium term.

Bears are in control of India telecom stocks

Bharti Airtel:

The stock is bearish in both short term and medium term charts. Volumes have gone up considerably during the last four months while prices continue to fall. The stock had broken the medium term support at 750 during January. Absence of typical chart patterns indicate uncertainty and medium term investors may consider exiting at higher levels.

Idea Cellular:

This stock too has turned bearish. During the week ending January 25 it had closed below the support trendline. The stock will face strong resistance around 130 during the pullback rally. However, one may consider a short term investment if it closes above 114.40.

Mahanagar Telephone Nigam:

During the month of January, the stock had lost 38% and almost tested the previous low (long term support) at 108.25. It had also broken the medium term support at 128.80 during the week ended February 1. The harami candlestick pattern formed during the week ending February 15 could not be confirmed last week. This stock too, is bearish for medium term.

Reliance Communications:

RCOM has formed a bearish "double top" in medium term charts. It had also formed a bearish three outside down pattern at the second peak. It has now broken the support trendline thrice but has not closed below it. A technical rally upto 726 cannot be ruled out and this should be used only to exit the stock. The declining volumes near the second peak followed by break below 726 confirms the pattern formation.

Tata Communications (VSNL):

The stock had completed the five waves and wave ‘a’ started during the first week of January. As such, there are no reversal signs and when the wave ‘b’ commences it will have a technical target of 645 i.e. 61.8% retracement. In this chart it can be observed that the low of wave 4 has fallen below the high of wave 1. From a short term perspective there is a strong resistance at 563.

Tata Teleservices (Maharashtra):

This stock had broken the support trendline but has not closed below it. The commencement of wave ‘b’ may be confirmed by a strong reversal signal. As such the stock is bearish. When wave ‘b’ commences it is likely to hit 50 which is the 61.8% retracement from considering a high of 64.95 and a low of 26.