Market Outlook Positive: A Recovery on the cards?

The broader markets have snapped the two-day losing streak on Monday and have sort-of reversed directions.

The NIFTY (Have switched analysing NIFTY from SENSEX now - neways they move in tandem J)

Its forming an Inverted Head & Shoulder formation. The breakout though is yet to happen - its around 5600 levels. A sustained breakout should make the NIFTY head to the resistance of 5697 and clearing which, to 5738 levels. The Technical indicators also are positive.

The big question is- Are we beginning to see a recovery in the markets now?

The crude prices were seen dropping since few days

We are seeing a marginal drop in the headline inflation which is further expected to reduce due to base effect in the coming months (and hopefully a good monsoon too)

The earnings growth of the companies have slowed a bit due to margin pressured but not drastically.

Interest rates are mostly at the peak - could be up 50 bps (which is very much on the cards and expected by the street). 

Seems to be the perfect time to jump into the market. The inverted H&S pattern is a reversal pattern and can be just the cherry on the cake.

The negatives are from a troubled eurozone which may pose macro risks.

A quick look on some interesting charts we observed:

RIL: Finally breaks out of the range on the upside leaving a pattern. 

A quick bounce should be expected as the indicators are positively placed. The Heavy-weight should be a major decider for the NIFTY too.

Punjab National Bank: PNB is one stock better placed technically among the banking-pack.

A crucial resistance needs to be crossed for the upmove. 

Sun Pharma: This is one stock that has been a technical favourite. It had broken out of a double bottom and made a quick trade last time. The stock now seems to be clearing the channel resistance line too. 

Since the markets are in an oversold zone too, the stoploss must be a tight and a trailing one.

Patel Engineering: It cannot be but co-incidence that another inverted H&S is identified. J

Patel Engg. was also in a huge downtrend since the half of 2010. 

The pattern could be a trend reversal for this stock. Refer to the chart for price specifics.

Now a look on some weekly charts 

Caution is to be taken here as the period of holding may be of a medium term

Usha Martin :  Its showing price divergence where we can see that the price has made an identical bottom but the RSI has made a higher one. A quick jump may be expected for the stock.

A similar situation is in VOLTAS Ltd. Refer to the charts for price specifics.