>EAGLE EYE ON 25/05/09 (SHAREKHAN)

Resistance at 4390

Markets on May 22: Rally in the second half of the day

The market rallied in the second half of the trading session on sustained buying that continued right till the end. The Sensex ended 150 points higher, and Nifty closed 27 points up. Mid caps and small caps also ended the day on a firm note. While buying was seen in capital goods and banking stocks, auto and realty stocks ended the day on a weak note. The observation on the daily chart is very unpleasant, as the momentum oscillator KST is at its all-time high; even higher than it was during the top of December 2007. Near 50% retracement level of the entire fall from the top of 6357; we are having such overbought reading in the momentum oscillator, which is not a good sign for the market. So, unless, Nifty moves above the recent high of 4510, bulls should remain cautious. Bulls with 957 advances and 309 declines on the NSE dominated the market breadth.

On the hourly chart, the gap between the momentum oscillator KST and the signal line is shrinking. On its positive crossover, we can see a bounce upto 4390, which is a good resistance level. Our short-term bias is down for the target of 3900 with the reversal pegged at 4510.
However, our mid-term bias is up for the target of 4550 with the reversal placed at 3700.

From the 30 stocks of the Sensex, Larsen & Toubro (up 5%) ICICI Bank (up 5%) and Reliance Industries (up 3%) led the pack of gainers, while Sterlite Industries (down 4%), Mahindra & Mahindra (down 4%) and Tata Motors (down 3%) topped the list of losing stocks.

To see full report: EAGLE EYE 250509