Nifty has support at 3990: Asit C. Mehta

According to Asit C. Mehta Morning Report, the Nifty has support at 4027, 3990, 3960(on a closing basis), 3896-3904(strong for short term), and 3848 ,3762-3773.

Asit C. Mehta Morning Report:

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Indian markets may open firm, tracking firm Asian markets.

Weekly Technical Analysis

The Nifty witnessed more choppiness during the last week, thanks to the volatility in the crude oil prices, political developments, global market cues, inflation numbers and weak IIP numbers. The Nifty opened at 4002 and reached a high of 4215.50. The Nifty made a low of 3896.05 and closed at 4049, with a marginal gain of 0.82 % on a weekly closing basis. The volume in Nifty future was comparatively less compared with the previous week. However, the open interest in Nifty futures remained high, indicating the a large amount of short positions still outstanding with the fresh short positions created on the last day of the week. The discount was in excess of 40 points during most part of the last week and closed with 19 points discount.

We mentioned in the same column, in the last week, "In the recent four occasions, in which Nifty closed above 5 and 10 day "SMA", the failure happened. So at least, three consecutive days' closing above these averages might be a first sign for negating the short term worst." The Nifty failed to fulfill the criteria with the last day's weakness. Interestingly, the Nifty faced a resistance at 20 day "SMA" (previously the same thing happened on 18/06/2008) and reversed the direction. The Nifty once again closed below the 5 day "SMA", however above the 10 day "SMA". The Nifty is slowly losing the short-term positive momentum, which gained with last Wednesday's fabulous rise. The Nifty closed below the crucial 13,34 and 89 "EMA".

The Nifty crossed the PSAR in the daily charts on the last Tuesday. However, it closed well below to that level. This indicates the break out may end with fatigue.

The RSI in the daily charts, though in positive mode, it started to move down wards. Both the stochastic, are in positive mode. The swing trade after entering into the positive mode for a day became neutral on Friday. The ADX is in sell mode. The MACD generated a fresh buy signals, which is a bullish indication.

Another interesting notable factor, the Nifty futures (as well as Sensex failed to clear the gap down day (27/06/2008) levels. At the same time, The Nifty futures are testing the gap up opening levels on 08/07/2008. Any fall below 3957(futures) will lead further fall. On the other hand a move above 4225 will make the short-term trend positive.

In the daily charts, the Nifty is forming a lower top and lower bottom formation so far. Any close above the upper line of the down ward channel will give clues for the further strength.

In the weekly charts, the Nifty was well below the 5,10 and 30 week " SMA". The Nifty faced resistance at 5 week " SMA" and reversed. Both the stochastic are in highly over sold zone, with the fresh buy signals. The swing trade is negative. The ADX is in sell mode. The RSI is in a sell mode. The MACD is in sell mode. However, the pattern in the weekly charts, suggests we are close to bottoming out, though not a classic one. In addition, the Nifty was taking near to the trend line drawn from May 2004, from the bottom of 1291.

In the monthly charts, the trend line support lies at 3760-3770. Any decisive close below this level or any monthly close below 3745 will led further weakness in the coming months. In the quarterly charts, since October 2003, the Nifty is trading above PSAR. This support got broken during the fall (4448). In previous three occasions, the Nifty fell further 7 % to 21 % from the break down levels.

Outlook for the Week

Some more early weakness is on the cards.

Based on the above rationale, the Nifty is expected to have a spill over weakness in the early trades. One has to watch the Nifty, for it's ability to get support at crucial levels, before entering into any trades. However, the Nifty is close to bottoming out. For this week, the Nifty has support at 4027,3990,3960(on a closing basis), 3896-3904(strong for short term), and 3848,3762-3773. (May be a reversal point). The Nifty has resistance at 4131(three days close above this level is first indication of short to medium term rally), 4215-4240(multiple resistance, at least a close above 4215 or trade above 4240 is a further confirmation of the rally), 4325,4488(strong for medium term)

Strategy

Traders can create fresh positions either below 3990 or above 4215 (on a closing basis) in that direction. Preferably choose derivative strategies. Investors can be on sidelines and while the fall comes near to the above-mentioned reversal points, they can consider buying with medium term perspective.