Morning Call - Oct 5 2009

The last two session candlesticks combination called “Bearish Doji Star”, warning of a coming trend reversal. The pattern requires a confirmation by lower closing in the next session. The RSI and the MACD are already showing negative divergence, in spite of this, the index managed to hold above the 13-day moving average. The Nifty Index is still 100 points away from the price objective of the “Ascending Triangle”. The nifty Index had a bullish breakout from the consolidation pattern called “Ascending Triangle” in late August at the 4760 level.

CNX BANK (8861): Strategy: Book Profit at Target: 9000,

A doji star is showing a loss of momentum. This pattern has formed near to the price objective of the “Ascending Triangle” pattern. The index had a bullish breakout form the “Ascending Triangle” on the second week of September at the 7750 level. Further, the indicators are showing negative divergence in the overbought territory.

CNXIT (5174): Strategy: Stay long for Target: 5375 with incremental Stop-loss of 5090

The CNX IT index has formed a spinning top formation after a strong white candle denotes the deliberation. This has confirmed by a brief negative divergence in the RSI which could trigger a brief correction towards the 13-day moving average at the 5000. The index had a bullish breakout from the 9-years descending trendline at the 4750 level. A clear move above the 5100 level will extend the current upward trend to the 5375 level.

USDINR (47.75) - Strategy: Stay short for the Target: 46.70 with a Stop: 48.60

The INR has given the bearish breakout from the three month long “Symmetrical Triangle” (green) with a falling gap which validates the pattern. Further, the RSI is below its support line and the MACD is in bearish mode certified the breakout. This will drag the currency towards the neckline of the major trend reversal pattern “Head & Shoulders” pattern at the 46.70 level.

India 10 Year Govt Bond Yield (7.21). Strategy: Long @ 7.21 for Target of 7.85 with a stop-loss: 7.00

The India 10-year bond yield has been rising after taking the support from the prior lower peak at the 7.00 level. Further, the RSI is above the broken support line hints the correction from the 7.47 level has completed. In September, the yield had a bearish breakdown from the nine months support line at the 7.30 level.

S&P500 (Last: 1057 BBG: SPX) - Strategy: Short in rallies @ 1075, Target: 1040, Stop: 1085

A couple of small real bodies’ candlestick after a strong white candle at the 13-day MA is indicating the lack of buying pressure. Since the past two weeks, the index has been struggling at the three and half month ascending trendline around the 1080 level. Both, the RSI and the MACD are showing negative divergence indicates the limited upside.

VIX Index (25.61, VIX Index) Strategy: Long @ 25.19, Target: 32.00– 40.00, Stop: 21.00

The VIX Index has been forming the “double bottom” pattern at the significant support of the two and half year support line and the 120-week MA at the 23 level since past two weeks. The index is placed at the key resistance level of the 100-day moving average at the 27.10 level. A decisive move above 27.10 will open the way towards the 30ish.

Crude (69.90, CL1 Comdty)

Crude has formed a strong white candlestick which placed above the broken support line of the symmetrical triangle and the 100-day moving average which indicates the failure of bearish breakout. This could open the way towards the upper line of the pattern at the 72.00 level and even further to the 77.00 level.

Dollar Index (DXY, 77.07)-Strategy: Long @ 77.10, Targets: 78.35-81.00, Stop-loss: 76.50

The DXY index is on the verge of bullish breakout from the 7-month long descending trendline at the 77.25 level. The RSI and the MACD are showing the positive divergence increased the chances of bullish breakout from the trendline. Further, the MACD is on the bullish mode supporting for the upward trend.

Nikkei Index (NKY, 9978) Strategy: Short below 9970 for Target: 9950, Stop: 10150

A week long holiday in the China, we replaced the Shanghai Composite Index to Nikkei Index. NKY index had a dual bearish breakout from the head & shoulders pattern and the 6-month long ascending trendline. A Falling window has increased the reliability of breakout. Since past four sessions, the index has been halting at the 100-day moving average at the 9970 level. A clear break of 9970 will open the way towards the 9950-the 38.2% retracement of 7021-10767 advanced rally.

Baltic Dry Index (2220):

The Baltic Dry Index, a measure of cost of hiring ships has been trading below the significant support of the 200-day MA at the 2230 level since over a week. This bearish breakdown would open the way towards the 61.8% retracement at the 2050 level. In early August, the index had a bearish breakdown from the 9-month long rising channel at the 3160 level. A broken 200-day MA is offers a strong resistance at the 2280 level.

Long ABAN Offshore (ABAN IS, 1648) for Targets: 1900 & 2200 and Stop-loss: 1550

Aban has been moving in the form of “Ascending Triangle” over the past four week after a vertical rise (165% rallied from the low of 631 on June-13). A move above the horizontal resistance line at the 1685 level will trigger a bullish breakout and resumed prior uptrend. During the pattern formation volume has been compress; it’s a key characteristic of the pattern. A trendline breakout in the RSI is offering an early indication of the trend reversal and often precedes the price breakout.