Daily Call - Feb 11 2010

US markets initially plunged deep in the red as Federal Reserve Chairman Ben Bernanke laid out plans to eventually raise some borrowing costs, but recovered thereafter to close with marginal losses as news was digested and markets realized that the immediate impact to the U.S. economy would be limited.

As expected, Nifty encountered a huge resistance around the upper band of the gap down opening on last Friday, the possibility of which was expressed in our Tuesday’s report. Our view that gains made merely on the back of short covering cannot be sustained, has also been vindicated by yesterday’s move. A further short covering was witnessed by FIIs yesterday as they bought index futures worth Rs. 879 cr while their OI went down by 22403 contracts. In Cash they provisionally sold worth Rs. 209 cr. DIIs however put in Rs. 459 cr. Put call ratio fell below 1 and Stock futures OI declined after a long time. An important observation I would like to share is that while a divergence on daily chart was already in place when markets made a lower bottom on last Friday but RSI made a higher bottom, a follow up action was required on the price chart to turn the view bullish. While a higher top higher bottom formation will only make that happen, a sustained crossover of yesterday’s high of 4827 will be the first move in that direction as it coincides with a trend line resistance joining tops of 22 Jan(5094) and 3rd Feb(4949). One can take a mildly positive stance if Nifty crosses 4827 decisively. Tomorrow markets are shut on account of Mahashivratri. Yesterday’s high of 4827 in Nifty, is now a crucial resistance while on the downside 4675 is the support.