Wednesday, November 21, 2012

Nifty Falls To Support, May Bounceback

The Nifty kept falling and finally, according to our forecast since September, went down to touch that trendline yesterday and then again, today. It opened today at a high at 5605, kept falling throughout the day till it made a low of 5548 and then posted a smart recovery towards the end of the session to close at 5571.

Attached above is the daily chart of Nifty. As seen from the chart, the Nifty today touched the trendline. Also attached on the charts are three indicators, namely, the MACD, RSI and the Slow Stochastics. If we look at the candle formed today, we saw that it just touched the trendline and then posed a smart rally which seems to suggest that support was found at these levels. An engulfing pattern after a downtrend is a trend reversal sign, though, I would have been much happier if we had a green candle today. Seeing just the candles, it'll be too early to say that we are going to see a reversal. However, close attention needs to be paid to the indicators. First of all, the MACD, on the last two occassions had turned around the moment it came to zero. This is the third time it has come to zero and (hopefully) it should turn around again. The RSI has come down to test the 40 levels and there seems to be some support there. If it turns around from here, it will be a bullish sign. Finally, the stochastics has come down to levels where it is time for it to turn around. For now, it's just a wait and watch situation with the Nifty, at least till tomorrow.
Attached above is the daily chart of HDIL. In the chart, you can see that the price candles have formed an incomplete double top sort of formation. The indicators shown are the MACD and the RSI as separate subgraphs and a volume oscillator (using the MACD formula) has been embedded on the price chart itself. As seen from the chart, the MACD and the RSI show a clear bearish divergence with the price suggesting that further downward move is possible. The volume oscillator too shows that the second top was formed with low volumes, a negative sign. If the prices continue to go down from the current 100 levels then the double top formation would be completed at 91-92. And if it goes below 90 then we are expecting a target of 72-74 in HDIL in the coming days.
Seen above is the daily chart of Karnataka Bank. As seen from the chart, the price has gone up from 78 to 147 in less than 3 months, a 100% increase. With three consecutive bearish candles, it is now showing signs of a correction. A correction could be as deep as 61.8% or 78.6% Fibonacci levels but if what we have seen was the 3rd wave of the Elliott Wave Theory then wave 4 should not enter the price territory of wave 1, which means that the decline will not come below 108. This means that the 61.8% level at 104 and 78.6% at 92 are out of contention. In the race now remain the 50% retracement levels at 111 and the 38.2% level at 120. The MACD has already given a sell signal in mid October and the RSI also is on the way down. Also the volumes have fallen during the terminal stages of the upmove.
Hmm.. two charts and both expected to go down and still expecting a bounceback in the Nifty? Well, it is because of the index heavyweights. Attached above is the daily chart of Infy. As can be seen from the chart, the 2290-2300 level is quite a good support for the stock and we don't expect it to go below that level. The logic for our prediction is the RSI finding support near the 40 levels.
Attached above is the daily chart of Reliance without any indicators except for a trendline. As can be seen from the chart, the price (just like Nifty) has touched the trendline near 760. Again, too early to say that a reversal may be happening but a quick visual glance suggests that 760 is a good support for the stock, as seen from the highs formed in March and April this year and the low formed in late August. If this support does hold, we should be looking at 820 as the next target. Please do subscribe to my posts, so that all posts are delivered free to your inbox and you don't miss any useful analysis of the markets in the future. Happy Investing!!!