AMI-Quants

Market Outlook [Oct 15th 2013] – Sensex falls from three-year high on inflation, US worries. Get ready for the reversal, exit from long & initiate short positions.

Short Term Outlook:-

Today Sensex falls 0.7 percent after hitting its highest intraday level since November 2010 on caution ahead of the October 17 deadline to lift the U.S. debt ceiling. We are expecting that the much awaited reversal is likely to be seen. The last week has been clearly in the favor of the bulls. However, the stability and sustainability of the move is in doubt. Last Monday evening, we saw that the MSF rates were slashed and bulls cheered. Despite a weak session in the global markets the Nifty managed to show strength on Wednesday, and Infosys posted a better than expected set of numbers on Friday. All in all the markets climbed the walls of worry and IIP numbers may just have put the spanner in the works. A paltry 0.6 % growth in August will seriously disappoint the bulls. Inflation data came on Monday was highest in last 7 months hence chance of rate cut is minimal.

This pullback from 5700 to 6100 is now confirmed as a corrective up move as is not an impulse. Buying puts is the appropriate strategy as the loss is defined and the potential for profits is unlimited. With major events lined up in the next 3 weeks, the chances of a downward move are still high. The momentum oscillators on the weekly and the daily charts are clearly overbought and imply that exiting long positions in individual stocks would be appropriate. An important point is that the bank nifty has now tested the 66% retracement levels of the fall from 11188 to 9587. This resistance level is at 10645. Also, the overall wave structure is negative. Going forward, if the market reacts negatively to IIP and Inflation data, then the Bank Nifty would be an appropriate short sell. 

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