Stock to trade on 07 02 2011

• REC Ltd :- NR7 bar pattern in RECL. Buy above 269, Sell below 260.
• BEML :- TA Turtle downside breakout in BEML 30 mins charts. Sell with stop loss above 823.

NIFTY DECLINE CONTINUES, GIVES UP 8 MONTHS OF GAINS

The Nifty closed at 5380, almost at a significant support level, lower for the week, as well as lower for the day. Friday was marked with a one sided move, when the Index opened at 5537 (near to previous day's close), made a high at 5565 then it started a decline for the rest of the day. The Index saw a decline of 209 points from its high to the low of the day, closing with a decline of 157 points to it's today open. On the daily chart, TA Insync(55-5) continues its decline, now coming close to the minus 45 level which is an oversold area. But, in weak markets, the indtcaor can simply keep on getting more oversold. Thus, we should expect a relief rally, but we cannot say when this will come about. It is possible that there may be more declines in between now and a rally.

Earlier, we had identified two significant support levels for the Nifty - 5380 and 5130. The Index has reached 5380. We now have to be patient and watch if the market will find support at current levels or continue down towards 5130.

Level:- Looking for support first at 5380 and then at 5130. Resistance comes at 5500.
Summary:- The Market is in an intermediate downtrend. So far, there are no signs of any change of trend.

Traders should take most trades on the short side.

Market Outlook for 07 02 2011

Friday session put paid to all expectations of bottoming out as benchmark indices nosedived. It looked like for first four days of last week as if 5400-5450 would prove to be a formidable support zone but one-sided move on Friday was enough to push even the hardcore bulls in a corner. Nifty lost over 130 points to slip below 5400 while Sensex shut shop just around 18k. This was the worst close in around 6 months. Carnage was seen across sectors as sentiments turned hugely negative towards the later half. On weekly basis, it was the relatively safe sector, FMCG was the worst impacted. BSE FMCG index lost over 6% during the week as investors sold heavyweights like ITC and Levers. Realty, Auto and the IT were the other ones that suffered the most, losing around 3% each. BSE metal index managed to eke out marginal gains on a relatively better show by Hindalco, NALCO and Tata Steel. Again, the global backdrop was positive as US indices moved to new post-Lehman highs. Local issues continued to bother investors.

Our expectations that Nifty might have seen a credible low around 5400 and we could see a sustainable rebound came to nought on Friday. The sheer momentum of the fall was unnerving as Nifty collapsed almost 185 points from its intraday high of 5556. Fall was aggravated due to weekend unwinding as traders rushed to square off any long positions. The fact that the worst impacted stocks were the ones that had held on relatively well suggest that investors and traders are in a panic mode now. The momentum is usually at its highest closer to the peaks as well as bottoms. Again, despite the sharp fall on Friday we do believe that Nifty might be closer to bottoming out though the momentum suggests otherwise. We have already seen correction of around 15% from November top and usually the normal corrective moves are of 12 to 17%
magnitude. Then as already suggested on earlier occasions also Nifty provided stiff resistance between 5350 and 5500 when we were trying to move higher. As an INVESTOR with at least 6 months view it would be advisable to invest a part of investible funds in companies that have shown good quarterly numbers. As a trader the momentum is still down and it would be better to wait for some bottoming out patterns to emerge before attempting long positions. Nifty now has immediate resistance around 5440-5450 while immediate trend would change for better only on a sustained breakout beyond 5550.