Thursday, June 20, 2013

Ranbaxy Up, R. Com Down, Nifty Yet to Decide

It's been a long time since I wrote last. And there's a good reason for that. I've been bearish on the Nifty for so many days now and there has been no change in the view till now so there was nothing new to mention. Such downsides will not come via a one-way movement and there are bound to be some corrections in between. What we are seeing now is a correction. Now, whether this rally that we are seeing is a correction or the bigger downside was a correction is yet to be seen. This present rally has started showing signs of a much bigger rally that may be coming. One may just have to be careful now and convert short positions, if any, into long positions when the time comes. 


5865-5870 seems to be the stop loss for the bears right now. A move above 5880 should be used to take long positions with immediate (well, almost) targets of 5950. Alternatively, if the Nifty does not cross 5865 then the negative view remains intact. A move below 5770 will confirm more bearishness. Today, the decisions of the FOMC meeting were announced where the Fed has planned to continue with the QE and has not planned to taper it (not even a wee bit), for the time being. It means that 85 billion dollars will continue to flow. And if that happens, you know what may happen. We saw 6230 because of the liquidity last time. It is possible that we might see a lot of volatility early in the morning. So, no decision should be taken till the market settles down a bit. It is best to take a position in the market only after the first 30 minutes are over. 

Today, I have also including some stocks in my analysis. Attached below are also the charts to support my logic.

Ranbaxy finding support at 3 year long trendline

Attached above is the weekly chart of Ranbaxy. I apologize for the cluttered up chart with all the indicators shown. The indicators include RSI, Stochastics and MACD. The chart shows a trendline which has been in place since April 2010, which has been tested for the 3rd time now. The last candle seen has found support at the trendline but is a red candle. Looking at the indicators we see a bullish divergence in RSI and MACD and Stochastics is oversold showing a value of only 9.44. Even on the Bollinger bands, it is at the bottom of the band. Also, not visible on this chart, but if you look at the candle formed today on the daily charts, it looks like a hammer. And a hammer formed after a long downtrend should be a bullish sign. I would be a buyer at this price (353) with a stop loss of 335. I would keep a target near the upper trendline at a price of 435. My holding time period would be 2-3 months.

R. Com making a broadening top and showing signs of weakness.

Also shown above is the daily chart of Reliance Communication (RCOM). Now RCom is a stock which has shown a fabulous increase from 50 to 125. It has now gone into a range and has been forming a broadening triangle. Some people say, it still has a lot of steam left to take it past 150. I, though, hold the opposite opinion. I think, it has already shown what it had to and can now go only one way - down. And, I have reasons to support my opinion. First of all, all three oscillators on the chart - RSI, Stochastics and MACD are showing bearish divergence. Secondly, the broadening formation is usually a bearish pattern, though, very rarely, it can turn out to be bullish too. Third, the candle formed today shows a long upper shadow which suggests a possible buying climax. The only positive thing I can see is that it has closed outside the upper Bollinger Band. Closing outside can represent two things, either a continuation of the trend, or a quick reversal. What is going to happen will become clear tomorrow. For now, I would prefer to remain a seller at 123 with a stop loss above 128.50. Though, the target can be close to 85-90 too, but I would prefer to keep a safer target of near 101. In the possibility, that it continues to rise tomorrow also, I will be a buyer above 128.50 for a minimum target of 140.

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