The Nifty has completed key targets hence book profits in any further rise

Investors are advised to be cautious for creating fresh longs and on the contrary advice to book profits in any rise from here on as the market is expected to become volatile and a decline is likely early into the new F&O settlement

S&P Nifty close: 5048.60    

Market Trend
Short Term Up            Medium Term Down            Long Term Down

The Nifty opened flat and after a one-day pause and rallied smartly to hit the R2 level of the week of 5,023 points as well as almost completed the 61.8% retracement of the decline from 5,399-4,531 points, pegged at 5,068 points. Thus the Nifty rose for the third consecutive week notching a handsome gain of 182 points (+3.75%). Volumes during the rise were almost equivalent to the previous week. The sectoral indices which outperformed were BSE Reality (+7.97%), BSE Oil & Gas (+6.43%), BSE Bankex (+5.94%), BSE Capital Goods (+5.49%) and BSE Auto (+4.17%) while the gross underperformers were BSE FCMG (-0.19%), BSE IT (+0.32%) and BSE Healthcare (+0.67%).   

The weekly histogram MACD has moved above the median line implying that the short-term trend has turned up even though the intermediate term trend remains down. The recovery continued on good volumes indicating strength. Those who created fresh longs in dips, as advised, should be cautious in any further advance from current levels as the risk/reward ratio is now becoming even. Therefore, one should look out for booking profits in further rallies as a decline is expected during the end of this calendar month. Alternatively one should raise his stop loss on positional longs to 4,979 points (for this week) and from a trading perspective to 5,004 points for Monday.

 Here are some key levels to watch out for this week
  • As long as the S&P Nifty stays above 4,979 points (pivot) the bulls can breathe easy and the onus is on the bears to pull things back.
  •  Support levels in declines are pegged at 4,895 and 4,742 points.
  • Resistance levels on the upside are pegged at 5,133 and 5,217 points.

Some Observations
1.    The bulls have succeeded in driving prices higher which have now we have reached the minimum target area between 5,023-5,070 points (Fibonacci target if one takes into cosideration the rise from 4,531 to 4,800 and the subsequent higher bottom of 4,588 points)
2.    This corrective rise has now come very close to 5,068 points (61.8% retracement levels of the fall from 5,399-4,531 points) hence one should be cautious in rallies from here on.
3.    A significant short-term top is already in place or is likely this week and one should book profits around the 24th-27th January 2012 from where we are expecting a sudden bout of selling to take place.

After a brief one-day pause, the Nifty rallied smartly but covered slightly more ground than was anticipated for this week. However, it has fitted perfectly into the picture we had visualized of the market going strong into the Futures and Options (F&O) settlement expiry due this week. We advocate caution for creating fresh longs and on the contrary advice to book profits in any rise from here on as the market is expected to become volatile and a decline is likely early into the new F&O settlement.

(Vidur Pendharkar works as a consultant technical analyst & chief strategist, at


Why has silver gone up by 5%?

The commodities market in silver showed some signs of life by suddenly moving up 5.4% on 20 January 2012.

Last year, silver exhibited one of its most volatile movements in recent times with a sharp parabolic movement that saw the price shoot up from $30 per ounce to reach a high of $48 per ounce in April 2011, before crashing to end the year at $28 per ounce.

Eric Sprott, chairman of Sprott Inc and one of the largest holders of physical silver and silver equities globally, was obviously not happy with this volatility. “I have always liked silver because I look at the physical supply and demand metrics and they scream that silver should be higher. But the price is being kept down by paper silver traders who are abusing the market”, he cites in an open letter to silver producers.

According to news sources (Y!  Finance), Mr Sprott had called for an action to 17 of the world’s largest silver producers to limit the sale of the metal until prices increase. Basically, he was calling for an unofficial cartelisation to control silver prices, similar to the arrangement Organisation of Petroleum and Exporting Countries (OPEC) has for oil.

Thus, in an attempt to ‘rectify’ the actions of the paper silver traders, he filed with Securities Exchange Commission (SEC) his intent to raise as much as $300 million in a follow-on offering of his fund, of which the proceeds will be used to buy physical silver.

If one reads the fine print of the SEC filing, it states: “....The net proceeds will be used by the Trust to acquire physical silver bullion in accordance with the Trust’s objective and subject to the Trust's investment.....”

So, on 20 January 2012, the silver commodities markets finally showed signs of life by exhibiting sharp upwards movement.  It has gone up by 5%, from $30.6 per ounce to $32.2 per ounce? Why?

Nobody realised the significance of SEC filing until according to FMX Connect, “Today’s incredible move was the culmination of a comment made by UBS analyst Edel Tully. He stated that hedge fund manager Eric Sprott may be in the market buying spot futures in a private letter to his clients.”

To summarise the above statement, the market felt that Mr Sprott will supposedly use the proceeds raised in the follow-on offering, and use it to corner the silver market, by buying $300 million worth of physical silver, thus taking some supply off the markets which, in turn, will make the metal dearer.

Mr Eric Sprott expects silver to touch $100 per ounce by 2012 end, from the current price of $32, and believes that this decade will be defined by silver and not gold.


Investing in Collectables: Collecting wealth

A concise and handy guide to turning one’s collection into investment

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