>EAGLE EYE ON 12/10/09 (SHAREKHAN)

Price and momentum—poles apart

Markets on Oct 12, 2009: Sharp bounce
Nifty continues to trade in the range of 4900-5150, where 4900 remains crucial on the lower side as that has been held for the third time now. Today, after consolidating in the first half, Nifty had a strong pullback that continued till the end of the session. The momentum indicators continue to be in sell mode giving a negative divergence. Usually these divergences happen at last before a strong correction. The volumes tend to decline in the final upmove and today’s volume was not in tandem with increase in price. So in nutshell, the upside looks to be capped and once the price confirms, the downtrend will resume.

On the daily chart, Nifty is trading above its 20 daily moving average (DMA) and 40DMA at 4966 and 4792 respectively, which are crucial supports in the near term. The momentum indicator (KST) has given negative crossover and is above the zero line. The market breadth was positive with 804 advances and 464 declines on the NSE and 1,642 advances and 1,192 declines on the BSE.

On the hourly chart Nifty is trading above its 20 hourly moving average (HMA) and 40HMA at 4997 and 5011 respectively, which are short-term supports now. The momentum indicator (KST) has given positive crossover and is trading around the zero line.

Nifty and the Sensex closed in green gaining 109 and 384 points respectively. Of the 30 stocks of the Sensex, Reliance Energy (up 5%) and State Bank of India (up 5.16%) were the top gainers, while Gujarat Ambuja (down 1.61%) was hit the worst.

To see full report: EAGLE EYE 14/10/09