Nifty falls into support zone; further declines would make risk-reward ratio tempting

Bottom fishing is like trying to catch a falling knife, but it certainly is becoming a tempting proposition for the brave-hearted

S&P Nifty close: 4747.80




Market trend
SHORT term: Down        MEDIUM term: Down        LONG term: Sideways


The Nifty opened flat and rallied in the first couple of days, but could not sustain above 4,925 points as selling pressure mounted again. As a result, the Nifty declined sharply (almost hitting the S1 level of the week of 4,717 points) to close 98 points (-2.02%) in the red. The volumes were higher and the volatility high but subdued as compared to the previous couple of weeks.

The sectoral indices which led the decline were BSE Metal (-5.29%), BSE Bankex (-4.81%), BSE Reality (-4.01%) and BSE PSU (-3.40%), while the ones which outperformed were BSE Teck (+0.03%), BSE FCMG (-0.15%) and BSE Health (-0.27%).

The Histogram MACD continues to be below the median line as the trend is firmly down. Last week, we saw the Nifty dip into the crucial support area, between 4,675 and 4,786 points, below which a critical support is pegged at 4,538 points. We can see in the weekly chart above that the trendline (in green) pegged around 4,624 points will also provide support. Therefore, there is strong support pegged at slightly lower levels, from where at least a contra-trend rise could begin.

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

  •  As long as the S&P Nifty remains below 4,811 points (pivot) the bears hold the advantage.
  • Support levels are pegged at 4,656 and 4,565 points.
  • If the S&P Nifty holds above the 4,811 points level in close, it could recover to 4,902 or 5,057 points.

Some observations

Despite the bears having an upper hand, they should be cautious especially at lower levels from here on.

The reason for this is that the current fall from 5,944 points equals the fall from 6,335-5,177 points as per the alternate cycle projection (ACP) method in the ratio of 100%, and as per the price cycle expansion (PCE) method in the ratio of 38.2%. Further downside targets as per the PCE method are 4,598 (50%) and 4,461 (61.8%) points.

Yesterday was the 34th day (Fibonacci number) from the recent high of 5,740 points (8 July 2011).
High volatility will continue this week as the bulls try to stem the rot around the supports.

Strategy


We have seen relentless hammering, resulting in the Nifty closing lower for the fifth successive week. The lows of 4,675 (11 February 2010) and 4,538 (6 November 2009) should act as support in declines, and as mentioned last week, those short should start covering their positions.

As the Nifty drifts lower, the risk-reward ratio becomes uneconomical for sellers. Bottom fishing is like trying to catch a falling knife, but it certainly is becoming a tempting proposition for the brave-hearted. For those who prefer safety, wait for a bottom to be established before taking any long positions.

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

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Bombay HC adjourns MCX-SEBI case to 9th September

MCX-SX has approached the high court challenging a SEBI order that had rejected its application seeking permission to launch equity operations. The exchange is already operating in currency derivatives segment

Mumbai: The Bombay High Court on Friday adjourned hearing on the MCX-SX-SEBI case to 9th September, reports PTI.

The court heard the arguments from both, the Securities Exchange Board of India (SEBI) and the private sector bourse MCX Stock Exchange (MCX-SX).

MCX-SX has approached the high court challenging a SEBI order that had rejected its application seeking permission to launch equity operations. The exchange is already operating in currency derivatives segment.

Earlier this month the Bombay High Court had asked SEBI whether it would accept an undertaking from the promoters of MCX-SX that they would maintain their equity holding at 5% and not exercise the option of converting warrants into equity.

SEBI representatives had responded by saying that they would seek instructions from the regulator's board in this regard. As per the SEBI guidelines, no promoter of a stock exchange can hold more than 5% equity stake.

In the above case, Financial Technologies (FTIL) and Multi Commodity Exchange (MCX), promoters of MCX-SX, had reduced their equity stake to 5% by evolving a method wherein they gave warrants to 18 PSU banks.

They assured the court that the warrants would not be converted into equity.

In a petition filed on 19th July last year, Jignesh Shah-led MCX-SX had urged the high court to direct SEBI to grant clearance for commencing operations in the equity segment as it had complied with the guidelines issued by the regulator.

Three days prior to filing the petition, MCX-SX came out with a public notice expressing anguish at the delay in getting license and also at the misinformation campaign launched by rivals.

MCX-SX pleaded that although it had complied with all SEBI regulations and norms to commence operations, it was not given the permission to commence equity trading. It also alleged that the market watchdog was favouring a rival stock exchange.

In an advertisement earlier, MCX-SX, without naming the National Stock Exchange, had alleged that its rival was killing competition by offering free trading in currency derivatives, and thus making it difficult for it to get business and investors.

"There have been attempts by some elements at spreading misinformation to create doubts among our shareholders and to undermine our reputation and business for their benefit," MCX had said.

In an apparent attack on SEBI, it had said the go-ahead for doing full-fledged business was elusive despite MCX-SX having taken all the necessary steps to make it compliant to the relevant regulations about trading in equities, equity derivatives, interest rate derivatives, mutual fund and debt market among other instruments.

Although MCX-SX became operational in October 2008, it is offering only currency derivatives products at present.

The stock exchange had said that one of the key conditions put on it was related to bringing down promoters' stake and it did so with a 'capital reduction-cum-arrangement' scheme and that SEBI was informed about the same, way back in December 2009.

While the scheme was already approved by the board and shareholders, it also got the nod of the Bombay High Court in March 2010 and the same was also notified to SEBI on 7 April 2010, MCX-SX said.

But the exchange has got 'no response from SEBI in this regard' as of July 2010, it had noted in the public announcement.

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Anna’s fast enters 12th day, Parliament set to discuss Lokpal

In a late night meeting between the government and Team Anna, law minister Salman Khurshid conveyed to the Gandhian's emissaries that a consensus should be built around the note struck by prime minister in his speech in Parliament on the Lokpal issue

New Delhi: Social activist Anna Hazare's fast entered into the 12th day Saturday as Parliament is all set to discuss the Lokpal (anti-corruption ombudsman) issue which could lead to the Gandhian calling off his hunger strike, reports PTI.

Concerns over his health were raised on Saturday morning after doctors said they were more worried than Friday night as the 74-year-old Gandhian's blood pressure has dipped while heart beat has increased.

"Anna is continuing his determination. But next few hours are decisive both ways. He is looking forward to the resolution of Parliament. Dr Naresh Trehan has examined him.

He looks cheerful and determined. But there are concerns," Team Anna member Kiran Bedi said.

Team Anna will be looking at the Parliament debate and adoption of a resolution would lead to the end of the fast.

The issue will now come up in Lok Sabha (Lower House of Parliament) when finance minister Pranab Mukherjee makes a statement on the Lokpal issue, setting the stage for a debate.

In a late night meeting between the government and Team Anna, law minister Salman Khurshid conveyed to the Gandhian's emissaries that a consensus should be built around the note struck by prime minister Manmohan Singh in his speech in Parliament on the Lokpal issue.

Asked whether the government had received any commitment from Team Anna, he said, "There are expectations but not a commitment."

The government hopes that "emergence of any form of consensus or convergence" during the day will persuade Mr Hazare about its "seriousness and willingness" to ensure there is good and strong Lokpal Bill.

As the fast crossed 260 hours, the Ramlila ground witnessed a thin presence of supporters.

The absence of the usual wave of umpteen number of supporters took the crew of TV news channels stationed at the ground and Hazare's supporters by surprise.

However, the volunteers said they expected strong numbers as the day progresses. Since it is a weekend, the number of supporters would increase, they said.

Security at the ground has been strengthened by police after a group of people clashed with cops in the wee hours of yesterday and created a ruckus.

The VIP gate, where the incident occurred at around 3am yesterday, has been secured by a strong posse of police and CRPF personnel. A Delhi Police videographer armed with a handycam has also been stationed there.

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