Monday, May 19, 2008

Target of 5300 Visible

The Nifty, on Friday opened in strength on Friday and remained range bound in a range of 40 points for a better part of the day and it was only in the afternoon session when the European markets opened that spurred a rally which took it past its highs of the day. A little bit of profit booking was seen near the end of the day which saw the Nifty losing about 15 points. On the whole, it was a green day with a gain of about 42 points.

As seen on this daily chart of Nifty, it has been rising since the last three days now and currently finds support at around 4950 and resistance near 5290. A move above 5290-5320 should be decisive for the markets. As seen from the charts, such a move will confirm a possible bullish head and shoulders pattern on the Nifty which could give us a target of around 6100. However, that is only a possibility and should not be acted upon till it happens. We cannot buy now on the assumption that a bullish head and shoulders pattern will be made. It is also quite possible that the market may go on to make another shoulder before actually crossing through 5300. One thing for sure is that we are in a short term and intermediate term uptrend (not to forget, that the long term uptrend was never broken) and that any dip in the markets should be used as a buying opportunity. Also shown in the chart is the 14 day directional movement ADX indicator which is currently around 18. A value below 20-25 suggests that the market may be going into or is currently in a sideways movement and it is not wise to take a position till the ADX crosses 25 or is at least 4 points above its previous lows. A move above 35-40 suggests that the trend may come to an end or slow down soon. A move above 5300 may probably also make the ADX go above 25.

The global signals are pretty positive today. The Asian markets were good on Monday and at the time of writing the Dow Jones is about a percent up i.e. 130 points in the green while the FTSE-100 closed 85 points up with a gain of about 1.3%.

I thought it might make some sense to look at the chart of Dow Jones also. As discussed in an earlier issue, the 9 month old trendline and the top of a 4 month old rectangle near 12740 was crucial and a cross above that would give us a target of 13700. This resistance was crossed on 21st Apr 2008 and has since gone through a pullback too and is now inching its way up. The downward sloping trendline at 13010 is providing resistance but at this moment, the Dow Jones is trading at 13132, much higher than this trendline. If it manages to close above this level (still about 3 hours of trading left in the day) today, it is on its way up to 13730 and then 14650. A close above 13010 will signify the end of the intermediate term downtrend in the Dow too.

Seen above is the daily chart of Aban Offshore and on it are seen three trendlines marked as 1, 2 and 3. Let us discuss each one in detail. The first trendline marked as 1 is the downward sloping trendline from the highs made on 29th Feb 2008 and Friday’s price movement confirmed that this trendline was broken. The second trendline, marked as 2, shows that the price has been finding resistance whenever it went to 4000 since 23rd Jan 2008, except for two exceptional days in February. The price did go above this trendline on Friday but closed well below it. The third trendline, the dashed one marked as 3, is an extended trendline starting from the lows made on 19th Mar 2007 (not shown on this chart). This trendline has been respected throughout except for the two areas marked by circles. A break of these three trendlines will be significant for Aban Offshore and the high volumes on Friday along with a large blue candle seems to suggest that this may soon be a reality. It may make sense to buy above 4000 with a stop loss of 3500 for a medium term target of around 5170.

Steel Authority (SAIL), if it manages to go past the trendline marked 1 on its daily charts would suggest an uptrend in the stock, which could take it to the next resistance near the trendline marked 2. The large blue candle with huge volumes on Friday seems to suggest that the price could go past this trendline on Tuesday. Consider buying above with a stop loss of 165 for a target of between 215 and 220. Revise the stop loss to 190 if the low is above 190 for two consecutive days.

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