Monday, January 28, 2008

Markets Remain Volatile

Whenever we trade in the markets, we either make a profit or we make a loss. Without any research and doing blind trades, our probability of making a profit is 50% (though, many of us would disagree, since more often than not, markets end up giving a loss rather than a profit). With Technical Analysis, we tend to increase our probability of making profitable trades, though only marginally. Technical Analysis helps us increase the probability to about 70%. And if we follow it religiously, we end up in the green over a period of time. Sometimes, markets do go against us even after proper fundamental and technical research. At those times, it is best to get out of losing trades with pre-decided stop losses. In volatile markets, such as these days, all our research may go for a six and these are the sort of days where stop losses come in handy. But to take profits from the markets, one has to accept losses too. That is a risk which one HAS to take.

The Nifty, as predicted in my earlier newsletters, is likely to remain in the broad range of 4500 to 5500 for sometime. A clear direction of the market can be predicted only after one of these levels has been broken. Till then, global and domestic events will keep disturbing the direction of the markets. In other words, till the global situation does not stabilise, we are likely to remain within this range and volatile movements, including gap up or gap down openings, are to be expected. In the long term the market is expected to remain bullish (at least till the time Nifty remains above 4500) and investors should buy on every dip. Traders should remain cautious with stop losses and should hedge their positions, or stay out of the market completely.

Hero Honda seems to be making an inverted head and shoulders pattern and a break through the trendline should confirm this pattern. Ignoring the movement in the first 15 minutes tomorrow, if it crosses above 710 after that then this pattern should be confirmed. One could consider buying it above 710 with a stop loss below 680 for a target of about 800.

IDBI seems to have broken out of this consolidation pattern and looks like it has started its upmove. A buy above 128 with a stop loss below 115 should give us a decent target of around 150. Avoid taking positions within the first 15 minutes of the opening of markets.

Same goes for Indian Hotels. This is looking very bullish to me. It not only seems to have broken out of the consolidation pattern but also has broken its downtrending line, which suggests that the uptrend may have resumed in this. Not sure about the price, but the RSI (Relative Strength Index) making an inverted head and shoulders pattern seems to confirm that the downtrend may be over. One could consider buying it above 142 with a stop loss below 125 for a target of 170.

I wonder whether this price chart of Tata Tea can be termed as an inverted head and shoulders pattern or not. Even if we consider that it is not a bullish head and shoulders pattern, then also it seems to have finished its downtrend. Not giving any targets as such, but buying it above 800 tomorrow with a stop below 740 should be a profitable move. It may face resistance between 950 and 1000.

Union Bank seems to have made a clear inverted head and shoulders pattern. Buying above 215 with a stop loss of 195 should be profitable for one who buys it. The target for this pattern could be between 260 and 270. It may face minor resistances near 225 and 235. While buying this should be profitable, yet one should be very careful because it is often said that "Clearer the pattern, the more likely it is to fail."


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