Bulls flatter to deceive; fail to hold Nifty above trendline resistance on weeklies

It has been a treacherous market for traders in the last few weeks and a breach of either 5,468 or 5,644 points will tilt the balance in the immediate short term

S&P Nifty close: 5,482

Market trend

SHORT term: Sideways        MEDIUM term: Sideways     LONG term: Up

The bulls barely managed to close the Nifty above the crucial trendline resistance of 5,655 points (as mentioned last week) for a single session, but the 50 basis point hike by the Reserve Bank of India saw them surrender this advantage meekly. In a week of volatile trading, the Nifty ended a whopping 152 points (-2.70%) lower. The volumes were also significantly higher during the fall which is a cause of concern for the bulls.

The sectoral indices leading the decline were BSE Reality (-7.39%), BSE Capital Goods (-5.22%), BSE Metal (-5.05%), BSE Power (-4.44%), BSE Oil&Gas (-4.24%) and BSE Bankex (-3.57%), whereas BSE Teck (+0.12%), BSE Health (+0.04%) and BSE FCMG (-0.41%) were outperformers.

The Histogram MACD has remained above the median line, despite the sharp fall of last week, implying that the intermediate term bias is sideways at the moment. The Nifty seems to be retracing either the fall from 6,181 or the entire decline from 6,338 points, which gives upside targets of 5,767 (50% of 6,338-5,195 came very close to this), 5,804 (61.8% of 6,181-5,195) and 5,902 (61.8% of 6,338-5,195).

Last week's decline has resulted in the Nifty breaching the 20wema mark pegged at 5,581 points, thus confirming our fears that the failure to take out the resistance line after bouncing from this average would nullify the bulls efforts. The Fibonacci retracement levels of the recent rise from 5,195-5,740 are 5,532 (38.2%, already completed), 5,468 (50% also completed) and 5,403 (61.8%), and these are the support levels to watch out for in corrections. The trendline support as depicted in the weekly chart (in black, pegged at 5,450 points) has moved up to 5,468 points. A breach of this could see the Nifty fall to the 5,300-5,320 range at a fast clip.

Here are some key levels to watch out for this week.

  • As long as the S&P Nifty remains below 5,546 points (pivot) the bears have the advantage.
  •  Support levels are pegged at 5,389 and 5,298 points.
  •  If the S&P Nifty holds above the 5,546 points level in close, it could reach 5,638 or 5,794 points.

The bulls have failed to push the Nifty above the resistance line (in purple, pegged at 5644 points), and they are under pressure to hold it above the trendline (in black), otherwise the bears will wrest the advantage. The stop loss on longs has moved up from 5,450 to 5,468 points this week.  

It has been a treacherous market for traders in the last few weeks, and a breach of either 5,468 or 5,644 points will tilt the balance in the immediate short term. However, one thing is certain, that the bulls are with their backs against the wall and they will have to defend the trendline support (in black) on the weekly charts. As we said last week "it's back to deuce".

(Vidur Pendharkar works as a consultant technical analyst and chief strategist at www.trend4casting.com.)


Weekly Market Report: Market directionless

Nifty to remain range-bound between 5,440 and 5,540

The market closed lower this week mainly on account of the 50 basis points hike in key rates by the Reserve Bank of India (RBI). The impasse in the US over raising the debt limit before the 2nd August deadline added to the concerns and the market ended 3% lower.

On Monday, the market closed with modest gains, continuing from the previous week. But the RBI rate hike on Tuesday erased almost all the gains of the previous two days. The cautious outlook expressed by the finance minister and indications of more monetary tightening to come kept the market lower on Wednesday.

Selling in heavyweights led the indices lower on Thursday. The losses were trimmed on Friday, but the market closed in the negative for a fourth consecutive day. The Sensex lost 525 points during the week, to end at 18,197, and the Nifty finished at 5,482, a loss of 152 points. The market is directionless, with the Nifty expected to trade in the range of 5,440 and 5,540.

The BSE Realty index (down 7%) and the BSE Capital Goods index (down 5%) were the major losers in the sectoral space, while the BSE TECk and the BSE Healthcare ended unchanged. There were no sectoral gainers in the week.

The top Sensex gainers on a weekly basis were Reliance Communications (up 9%), Bharti Airtel (up 6%), Maruti Suzuki (up 4%) and Bajaj Auto (up 1%). The losers were led by Jaiprakash Associates (down 11%), BHEL, Reliance Infrastructure, Jindal Steel & Power (down 7% each) and State Bank of India (down 6%).

The main gainers on the Nifty were RCom (up 8%), Bharti Airtel (up 6%), Maruti Suzuki (up 4%), Axis Bank (up 3%) and ACC (up 2%). The major losers on the benchmark were Jaiprakash Associates (down 12%), IDFC (down 11%), Kotak Mahindra Bank (down 8%), BHEL and Reliance Infra (down 7% each).

Following the RBI's rate hike, retail home, auto and personal loans as well as corporate borrowings are expected to cost more. Expectedly, industry expressed its disappointment over the sharp increase in interest rates, saying the move would harm investment sentiment.

Food inflation fell to a 20-month low of 7.33% for the week ended 16th July. The decline could also be attributed to the high 18.56% figure of the corresponding year-ago period, dubbed as the 'high base effect'. The latest figure is the lowest since separate data for food inflation was first released in November 2009.

The moderation in food inflation is expected to come as a relief for the government and the Reserve Bank of India (RBI), which has repeatedly hiked key rates to tackle inflationary pressure.

According to data released on Friday, eight core infrastructure industries expanded by 5.2% in June as against 4.4% in the same period last year. The expansion was attributed to healthy growth of electricity and steel, which grew by 8.2% and 12.5% in June from 3.8% and 4.3% in the corresponding month last year. However, overall in April-June 2011, the growth of core industries slowed down to 5% from 6.8% in the previous corresponding quarter.

On the corporate front, the Competition Commission of India (CCI) has cleared Reliance Industries' (RIL) buyout of Bharti group's 74% stake in insurance joint ventures (JVs) with AXA of France. Once the deal materialises, RIL and its subsidiary Reliance Industrial Infrastructure (RIIL) would own 57% and 17% respectively in both the insurance companies and would become AXA's partners in India.

More than three weeks after the Cabinet Committee on Economic Affairs (CCEA) gave its conditional nod to the $9-billion Cairn-Vedanta deal, the oil ministry on 26th July sent a formal letter to the companies informing them of the decision. The government's okay to the transaction is subject to Cairn, or its successor, agreeing to treat royalty payments on the Rajasthan oilfields as recoverable from oil sales. Also, Cairn India will have to withdraw the arbitration it has initiated disputing its liability to pay Rs2,500 per tonne oil cess on its 70% share in the fields.

On the global front, the Senate on Friday rejected House Speaker John Boehner's debt-limit plan, hours after the House had passed it. The House now plans to vote on Democratic Senator Harry Reid's plan on Saturday, in the hope that it would pave the way for a bipartisan compromise on the debt ceiling and stave off a default. Even if a late deal is struck, the US risks losing its top-notch AAA credit rating.

World leaders are appalled by the state of affairs in Washington and World Bank president Robert Zoellick said on Friday that the US was playing with fire.


SEBI imposes fine of Rs90 lakh on two Pyramid Saimira directors

PSTL claimed to have entered into lease/hire agreements with 765 theatres in various states as on 31 March 2008, and with 802 theatres as at the end of June 2008. However, during investigation it was able to show copies of only 257 such agreements

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) on Friday imposed fine of Rs90 lakh on N Narayanan and V Natarajan, directors of Pyramid Saimira Theatre (PSTL), for indulging in fraudulent and unfair trade practices, reports PTI.

The case relates to PSTL’s involvement in committing irregularities in its books of accounts and showing inflated profits and revenues in financial statements for 2007-08.

PSTL and its directors lured the general public to invest in the shares of the company based on such false financial statements.

“After taking into consideration all the facts and circumstances of the case ... impose a penalty of Rs50 lakh on the noticee N Narayanan and Rs40 lakh on the noticee V Natarajan respectively, under Section 15 HA of the SEBI Act which will be commensurate with the violations committed by them,” the market regulator said in an order.

The Section 15 HA has provisions for imposing penalties in case of fraudulent and unfair trade practices.

The order comes a day after SEBI imposed a penalty of Rs1.1 crore on MS Swaminathan, promoter and managing director of PSTL in the same case.

Both Mr Narayanan and Mr Natarajan were whole-time directors of PSTL during the period when the irregularities took place and were alleged to have published false and misleading financial results of company.

SEBI had initiated inquiry on the irregularities in November 2009 and a show-cause notice was issued against Mr Narayanan and Mr Natarajan in April 2010.

PSTL claimed to have entered into lease/hire agreements with 765 theatres in various states as on 31 March 2008, and with 802 theatres as at the end of June 2008. However, during investigation it was able to show copies of only 257 such agreements.

The market regulator also found that no money was paid by PSTL to some theatres for creation of security deposits.

SEBI also observed the duo failed in their duty to exercise due care and diligence and allowed the company to fabricate the figures and making false disclosures.


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