NIFTY BREAKOUT ABOVE 5500 HAS TURNED OUT TRAP?

      Last week nifty opened at 5531.15 & went up to register the high of the week at 5549.80.It then declined  relentlessly to mark the low at 5391.95 & finally closed the  week at 5408.70.Thus it lost 121.05 points over the previous week which is 2.3%.

RETROSPECT: - Our no action mode has saved us from being trapped on long side above 5500.

SENTIMENTS: - There is no perceptible change in sentiments over the previous week.However the earning season's short fall to the expectations have  become reality & began readjusting in price level.Expectations started to build on fertilizer & power policy after the oil marketing & telecom policy from the government.However the realization of the CHINESE WALL of 5500-5600 has dawn on sentiments on the last day of the week & turned the sentiment quite soar or negative.

ELLIOT WAVE THEORY: -   Last week we had reported that the purple color trend line breach should be taken as the first confirmation of the termination of five wave sequence. Since the rise from 5397.40 to 5549.80 has been completely retraced in lesser time than what it took to form ,the five wave sequence from 5210 to 5549.80 stands completed. The rise from 5210.00 to 5549.80 took 38 working days & if 5210 is breached on the downside in lesser than 38 days from 5549.80 it will confirm the termination of the five wave sequence from 4786.45 to 5549.80.The 2-4 trend line in blue color of this larger degree wave has  already  breached on downside confirming that the five wave sequence from the 5210.00 being the terminal in nature. The whole rise from 5210 is in the form of RISING WEDGE as shown by the pink color converging lines. Last Friday the prices have already broken out from the wedge on the downside & usually prices return to the base of RISING WEDGE in about 20 to 25% of time what it took to form the wedge.As it took 38 days to form we are expecting it to come to 5210 in 9 to 10 working days. It has already took 4 days last week so by this Friday it will complete 9 days & should ideally come near to or breach 5210.

A BREACH BELOW 5210 WILL BE THE CONFIRMATION OF THE TOP FORMATION AS WELL AS DOWNWARD COMMENCEMENT OF THE WAVES.THIS WILL BE CORRECTING THE RISING WAVE OF 2965 POINTS SPANING OVER 16 MONTHS.THIS IS THE INDICATION OF THE MAGNITUDE & DURATION OF THE CORRECTION LIKELY TO SET IN.HENCE WE ADVISE TO LIQUIDATE ALL LONG POSITIONS UNLESS THE SPECIFIC STOCK  DISTINCTLY DISPLAY THE BULLISH PATTERN.

JAPANESE CANDLESTICK:- Last week it has formed the BEARISH ENGULFING LINE as shown in the chart above.It is a reliable reversal pattern & assume more significance such prolonged upmove.Also noteworthy point is if nifty closes near or lower than last Friday's closing then it will form the shooting star pattern again a reversal pattern.

CHART PATTERN:-  The rising wedge pattern in the weekly chart is still valid & break out will be confirmed on breach of 4900.It may be pertinent to note that in daily also there is wedge formation & has broken last week.

OSCILLATORS READING:-  The daily RSI & MACD has  turned down & indicates the short term  bearish atleast.The weekly RSI,STOCHASTIC & MACD  have remained the neutral mode & may turn down if nifty moves down with vigour.

SECTOR ANALYSIS:-  This week we are analysing the BANKING   sector.It has risen sharply from 3314.55 to 11126.85 in last 18 months.Technically we are of the view that it has already completed a larger degree five wave sequence or at worst it may have one more small wave  balance on upside.However it should react by atleast 1000 points.There is 90% chance that top is formed as there is weekly BEARISH ENGULFING LINE formed with huge volume in bank nifty future.We advise selling short at 10800 with the stop of 10900 for the target below 10000.

STOCK RECOMMENDATIONS:-  

(1)SELL OPTOCIRCUIT at  282 with the stop of 286 for the target of 266.

(2)SELL VIDEOIND  at 266 with the stop of 270 for the target of 248.

(3)SELL BHARATFORGE at 358 with the stop of 365 for the target 332

(4)SELL JINDALSTEL at 710 with the stop of 720 for the target of 660.

(5)SELL INFOSYS at 2730 with the stop of 2760 for the target of 2560.

PULSE-READING:-  JKD SOUL VOICE SAYS THAT MARKET IS JUST RIPE TO EXHIBIT THE IRRATIONAL EXUBERANCE & RETAIL & NOVICE INVESTORS ARE ADVISED TO REFRAIN IN THIS MADNESS.

OUTLOOK & STRATEGY:-  Keep strict watch on the 5478 for upside  & follow the break out on downside. Ideally market is preparing for big break down & be prepared for it.