Technical Analysis of Indian Equities by Nooresh

Inflation 9 % … Base Effect/price cut or fall.Not a concern though

Sensex Technical View :
Sensex gives a close below 9600 which opens up doors to 8900/9300 zone. Now let us see some technical factors.
1) Gaps !
The 2 open gaps are at 9361-9297 and 8740-8900. Breaking below 9600 makes way for the gap at 9300 to be filled in near term. The lower gap at 8900 is an important support zone as it was a gap after a turning point and ideally it needs to hold up on closing basis for positive bias to remain.

2) Fibonacci Retracements
The 50 /61.8 % retracement levels are placed at 9300/8900. We could see a test of these zones in a corrective downmove.

3)Patterns :
Couple of days back many chartist were looking at a possible head and shoulders but till it doesnt breakout or crossover its just an academic exercise. So the current structure suggests 8500-8900 zone is important on closing basis if it sustains below that the low would be in danger. The time analysis suggests we should stay above the 7700 levels for around 20-40 sessions or 4-7 weeks. Till we dont breakout of this pattern of lower high lower bottom the pressure would remain.

The ideal strategy yet again is to react to market moves then to try guessing volatility. So once we reach closer to 8900/9300 zone it would be to close shorts and watch again. 8500 is a level below which the low of 7700 could be in danger. But better to wait for 2-3 sessions of closing before taking a major directional call.

Stocks to watchout for :

Possibly there could be a weak opening with bad global cues but difficult to guess the extent of it. Yet again lot of stock calls would be triggered on intra day reaction basis. Had a few short calls yest HDFC 1710 ( covered at 1630-1650 ) , Kotak 397 ( 380 covered ) , RPL short at 78.5-80 ( hold ).
So no calls for near term but shorts shud be covered in the range of 8900-9300 or keep trailing stops once we near the range to conserve profits.

Market Observations and Thoughts :

Inflation at sub 9 % may be good news but its no more a concern as a matter of fact it could plummet quickly in next year too.

Before we get into inflation discussion i believe its no more a concern and will not remain so for next 6-12 mths. We have seen a peak in commodity prices and a similar price rise is not expected in next 6-12 mths. But the core concern now is not inflation but growth or slowdown. So its just an academic exercise we are taking by discussing on it.

In my earlier view of base effect we discussed how inflation could fall even when prices dont go up heavily. But now it would see another impact which is the fall in prices !!!! .
This implies it could be an effect of fall in prices plus the base effect. So such drops in inflation would be seen near to price cuts ( ATF , Crude , power etc etc ) .

ATF prices were cut twice dunno when but in a matter of month or so and might be cut again also if crude goes to 50 . This could impact inflation. But we can safely assume inflation has peaked at 13% but whether it can go to the 4-6 % safe zone over next one year is the next thing to watch on.

The fall in inflation generally increases the sentiment towards a RBI rate cut. The concern is more towards a flow of credit then towards liquidity from here on. Every further rate cut should see a cut in lending rates and a better flow in lending otherwise its not that useful economically. Lower lending rates , easier lending , lower inflation which could come only in mid of next year which could be the inflection point of a turnaround in economy if it has to come. So keep a watch on this scenario , but sentiments should remain low till Dec/ Jan as per earlier projection.

Best Regards,



Article by Nooresh Merani

Nooresh has written 2555 articles.

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