Weekend Report-Nov 06th 2010- Market Technical Analysis & a Strategy

Last week has been a news full of week. As traders if you  had followed some of the news, you could see the positive expectations lots of companies and fund managers have towards 2011 specially in the finance sector. Since Sri Lanka finance sector has been resilient to many economic challenges, its expected to outgrow ASI return during the economic boom. So its well worth to allocate significant part of your portfolio to this sector. More on this later.. Lets now focus on the technical side of the market.

Market lost three days out of four it was open. Wed market action really caught my eyes. Trading volume was very high compared with recent 2-3 weeks but price did not drop significantly. This tells us that market is absorbing the selling pressure. Even though the volume was low rest of the week, market was able to put the break on downside.

Key points
1. Market is still above the support line (158 points above)
2. Price declining is gradually slowing down
3. Based on the trendline (thin blue line) its possible that market may hold on above the trendline next week.

Now, lets look at Yahoo graph week ending Nov 5th.

If you look at the 20 day 50 day MA (moving average), market has not significantly violated the MAs. So the reaction started in Oct still come under a 'short term'correction. Stoch (which shows over-bought or over-sold condition) and MFI (money flow index) is a bit disappointing, but still above the last week of Oct lows.

WHAT TO LOOK FOR WHEN A MARKET IS IN A TRADING RANGE LIKE THIS
When a market is trading in a range like this, it gives us the chance to evaluate which stocks/ industries are stronger than the market. And when price starts o climb up, stocks that held their prices tight will go up much higher than the market.
For example, let's look at recent HNB stock graph;

(Bloomberg.com)

When the overall market is trading in a range (and unable to break the upward movement), HNB is refusing to be in the group and showing a upward momentum. There are many stocks like that. So rather than waiting till prices to start going up, research these type of stocks and add to your potential list (watch list).

You may have noticed that I always mention the data source where I get this data from. This is to enable you to go to the same source and start your research work.

Get informed and get smart!, Have a great Trading week.
To your success,
Manoj Balasooriya

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