What started out as a pretty bearish day in the market due to continued pessimism reversed and ended up sharply bullish

The NSE ASI rebounded from within a critical 20,598 support level today by over 26.89 points. This is an extremely important rebound as it established the fact that the daily 30MA acted as a good support line that might push the market up into a significant up trend.

The Index now stands what used to be support levels of 28th December and 4th of January Lows now a resistant line, which means todays rebound is not off the danger line, We need to see more healthy movement above these levels this week or we term this rebound as a Dead Cat Bounce.

However, unless something changes in the fundamentals, the market might not have the catalyst to turn this intermediate bear trend around yet. As such, such short term bounces still serve more as exit points than entry points.

Technicals

The chart below shows intraday movements of the NSE ASI from 9.30am-2.30pm,

• Early morning trades showed bullish spikes from 20,589- 20,685 points
• Mid day rally saw selling pressure as NSE ASI hit below 20,598.67 points
• Last hour showed resumption of Buying pressure as the Bulls regroup closing NSE ASI up by 0.13%

In technical terms, this is called a “HAMMER CANDLE FORMATION”  

The Bullish Hammer Pattern is a significant candlestick that occurs at the bottom of a trend or during a downtrend and it is called a hammer since it is hammering out a bottom. The Bullish Hammer Pattern is a single candlestick pattern and it has a strong similarity to the Bullish Dragonfly Doji Pattern. In the case of Bullish Dragonfly Doji Pattern, the opening and closing prices are identical whereas the Bullish Hammer Pattern has a small real body at the upper end of the trading range.

Recognition Criteria:

1. The market is characterized by a prevailing downtrend.
2. Then we see a small real body at the upper end of the trading range. Color of this body is not important.
3. We would like to see the lower shadow at least twice as long as the real body.
4. There is no (or almost no) upper shadow.

Explanation:

The overall direction of the market is bearish, characterized by a downtrend. Then the market opens with a sharp sell off implying the continuation of the downtrend. However, prices suddenly turn upwards, the sell-off is quickly abated and bullish sentiment continues during the day with a closing price at or near to its high for the day which causes the long lower shadow. Apparently the market fails to continue in the selling side. This observation reduces the previous bearish sentiment causing the short traders to feel increasingly uneasier with their bearish positions.

Important Factors:

If the hammer is characterized by a close above the open thus causing a white body, the situation looks even better for the bulls.

The Bullish Dragonfly Doji pattern is generally considered more bullish than the Bullish Hammer Pattern and a higher reliability is ascribed to this Doji than the Bullish Hammer Pattern.

The reliability of Bullish Hammer Pattern is low. It requires confirmation of the implied trend reversal by a white candlestick, a large gap up or a higher close on the next trading day.

For now, the NSE ASI turns a short term bull trend within an intermediate bear trend within a primary bull trend.

TA SIGNALS FOR JANUARY 25, 2012

Advertisement