Time to be Careful - A Small Bounceback Likely

There is nothing new to suggest or to recommend. It is clear from the pattern that the Nifty is displaying, that we are in a downtrend and sufficiently clear that we may go down further. The suggested levels of 5528 are now looking like a bright possibility. Our first analysis of the market had suggested that we may revisit levels of 4300 once again. Now, whether the market actually goes to 4300 or not, it does not matter. While we will continue to remain short till those levels, we should also be wise enough to exit from shorts when we start getting signals that the downtrend may have finished. Let us look, once again, in detail about the next short term targets for the Nifty.

No Change in Chart Patterns - Wait and Watch

Not much change in the Nifty chart patterns today. The Nifty traded in a very narrow range today - a total movement of only 33 points between the high and the low - not even a movement of 1% during the day. After a whole day of trading, the Nifty managed to close in the green but did not make any change in the chart patterns. Individual stocks, however, showed some interesting movements, some of which have been analysed below.

Attached above is the daily chart of Nifty. As seen above, the chart looks exactly similar to the one shown yesterday, except for the last blue candle seen today. Today, as seen, was a narrow range day and also a harami, which after an upmove signifies that a short term reversal may be coming. So, nothing much to comment there on the Nifty and our view still remains the same that it should come down to the trendline before we think of buying again.

Attached above is the daily chart of Ambuja Cements which showed a decent increase today. As seen from the chart, the price came near the trendline which was providing support near 200. The stock made a low of 201 today and reversed from there and made a high of 207 before ending the day at 206.10. This candle signifies that the short term downtrend in Ambuja may have ended for now. It may be a low-risk buy at the current levels with a stop loss of 195 and a target of between 220-225 can be expected in the coming days.

Pasted above is the daily chart of Sun TV which showed a big downward movement of more than 6% today and closed the day at 343.45 against yesterday's close of 356.60. This movement comes after a small double top formation which will be confirmed below 338. Also seen on the chart are the RSI and stochastics indicators which show a bearish divergence along with the corresponding highs on the price chart. I expect Sun TV to move down to the trendline between 323-325 before any fresh buying opportunities may exist.

On the daily chart of Havell's, as seen above, a large candle showing a downwards movement, and the kind of pattern seen seems to suggest that there is more to come. The stock may find some support between 607-610 but eventually will have to break that support and may go right up down to the trendline to find support between 550-560. Stay short on Havell's below 600.

This is a pattern which I love to see, as seen on the daily chart of Oriental Bank above. This is called a Flag pattern and is so called because it looks like a flag, as can be seen from the trendlines drawn. A flag pattern is a continuation pattern and the confirmation of this pattern on the OBC chart means that the stock may continue to go up and it may have a target of 350-355 on the upside in the days to come. The only thing that scares me is the bearish divergence seen in both the RSI and the stochastics.

Seen above is the daily chart of IRB. As seen from the chart, the price of IRB showed a big downwards movement today closing Rs.22 in the red at 119, a movement of over 15% in a single day. Not only did it show a big red candle, it also closed below the good support of the trendline at 123. It now has a target of between 85-90 in the coming days. It may either go there directly or it may show a bounce-back back to the trendline at 123 in next 2-3 days. The RSI also going below 40 signifies that there is no support expected near the trendline at 123.

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A Correction on the Cards

The Nifty closed a quarter of a percent down today losing about 14 points from its previous value. After a reasonably decent opening at 5673, it continued to move up in the morning trades to make a high of 5693 before noon. It remained in the positive till about 2 in the afternoon when the bears took over and pushed it into the negative territory. A last ditch effort to remain in the positive came in the late afternoon trades but could not sustain and the Nifty closed at 5649.50, 14 points in the red.

Attached above is the daily chart of Nifty. Shown on the chart is a trendline sloping upwards connecting the early June, late July and early September lows. Also shown on the chart are two indicators, the MACD and the RSI. Another line is shown connecting the last two most recent highs and a corresponding highs made by the RSI in the same period. As can be seen from the charts, the Nifty made a higher high while the RSI failed to do so in the corresponding period, thus showing a bearish divergence. The RSI has turned downwards and has just penetrated its 9-period signal line, indicating a sell, albeit mild. In the last 20 days, the Nifty has gained almost 500 points without any major correction, a gain of almost 10%. At this stage, a correction is long overdue and signs of weakness are already visible on the charts. A downward correction may take the Nifty back to the upward sloping trendline which could provide support to the Nifty close to the 5400 levels. A steeper downward move could take the Nifty down to the dashed blue line which lies at 5360. This is the line which has provided support to the Nifty once and resistance to it 6 times in the last 9-10 months, a very significant support indeed. So, till we get to that point, it's just a sell on rise market and when we get to 5400 nearabouts it's going to be converted into a buy on dips market.

Seen above is the daily chart of Silver. Silver in the last 45 days itself has shown a rise of almost 12000 points, a rise of almost over 20%. By the looks of it, and using the Elliott Wave Principle, I think we have just entered wave 4 of this uptrend. And if this is a wave 4 then I would expect that the correction would not be very deep (maximum 38%). Secondly, according to the rules, wave 4 should not enter the price territory of wave 1 and the highest point of wave 1 was 56337 and we are a long way from there. A 38.2% retracement, as shown can bring Silver down to 60142. The 23.6% retracement level lies at 62255 and the last 3-4 days, even though have shown a spike below that level but never has Silver closed below it in this correction. This suggests that this 62255 may be a tough level to break. The two consecutive green candles in the last two days show that the price is ready to move up again. An upmove from this point may see Silver finding resistance near 64000 levels and if it crosses that, it can go right past the previous high of 65670 too and my next target for Silver then would be around 68000. But it all depends upon whether the wave 4 correction is complete yet or not. And believe me friends, only time and the markets can tell that, not mortals like you and me. All in all, by the evidence that we've got till now, I would be a seller in Nifty and a buyer in Silver. 

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Nifty May Perform Poorly

As expected, with global cues being strong, the Nifty did open with an upwards gap of about 70 points and then stabilized around those levels till about 12:30pm and then commenced falling. The fall was sharp and severe and the gap with which the market opened, was filled/closed today itself. The Nifty closed exactly at the same level as yesterday’s close and thus formed a gravestone doji. If one looks at the chart, it does not exactly look like a gravestone doji because NSE takes the closing price as the average of the last 30 minutes of trade. Taking actual closing prices of yesterday and today, one can realize that this is a gravestone doji. This is what Street Authority says about a gravestone doji.

As I said in yesterday’s post, the Nifty has been alternating between up days and down days since the last 5 days. Though, today also happens to be a day marginally in the green, yet a gravestone doji (or a candle with a long upper shadow and a small body) is a sign of weakness. This should bring the markets down and the Nifty may finally find support between 4150 and 4200. If 4150 is also broken on the downside, we should be looking at a target between 3800 and 3900. The trend, as yet is not clear. We are in a short term downtrend while the intermediate term is sideways. To predict/forecast analyse, what will happen in the short term and the intermediate term, I am doing the analysis on both the 30 minutes charts and the daily charts.

Attached above is the 30 minutes chart of the Nifty. Seen on the chart is a trendline joining the different pivot highs and lows made during the month of August. Shown in the bottom portion of the chart is the Relative Strength Index (RSI) and superimposed on the prices is the Moving Averages Convergence Divergence (MACD). Let us discuss each one in detail and try and analyse which way the prices will move in the immediate short term. First, let us look at the RSI. The RSI today made a pivot high higher than the last pivot high which was made on 20th. The prices corresponding to these highs are seen making lower highs. Looking at the lows formed in the Nifty on 18th and on 22nd, the RSI at the same time is seen at the same level and is not making newer lows. So, as marked by the green arrows, there are two instances of a positive divergence occurring between the price and the RSI. But a divergence is just an indication of a reversal and not a confirmation. A confirmation will come if the trendline is broken towards the upside, i.e. if the Nifty were to go above 4370. If it turns back tomorrow and does cross 4370, it would also have made a small bullish head and shoulders pattern, the target for which would be close to 4520.

But like all coins, this has a flip side to it too. Coming back to the RSI, as marked in the circles, we can see that the RSI is finding resistance near 60, which is not exactly a sign of a bull market. Looking at the trendline, we can see that today was the sixth occasion that the Nifty tried to go above the trendline in this month but failed. Assuming that this would continue to provide resistance would be bearish for the markets. Also looking at the MACD which has been superimposed on the prices, we can see that unless the Nifty recovers drastically tomorrow, we shall get a sell signal from the MACD too.

Above is the daily chart of the Nifty and an attempt has been made to study the intermediate term trend of the Nifty. As mentioned yesterday, the Nifty has now entered a sideways phase between 4200 and 4650 and would not give us a clear signal till it comes out of this range either on the upside or on the downside. If we have a look at the RSI, we can see that it has now broken the trendline which was providing support to it since the last few days and has bearish implications. These bearish implications would be cancelled if the RSI finds support near 40 and turns back. As far as the MACD is concerned, as mentioned in a post a few days ago, the sell signal which was generated is still valid and again has bearish implications for the markets. So, all in all, I am expecting the markets to perform poorly in the next 2-3 days.

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Nifty Breaks Out, But Wise to be Cautious

The Nifty opened in the green today on the back of strong global cues. The first minute of the day saw the Nifty trading above 4600. Since then, it has been a very dull day for the Nifty since it made a high of 4615 after that and a low of 4580, a range of only 35 points. This narrow range continued upto 3 pm when the Nifty did manage to go 10 points past its high of the day. The positive opening was good for the markets, the fact that it sustained near the highs was also good and closing near the highs was very good. It is the narrow range during the day that worries me since that is not exactly the sign of a breakout.

Seen above is the 60 minutes chart of the Nifty. As suggested yesterday, the index was moving within a falling trend channel, which was looking bullish on the hourly charts since the Nifty went into this channel after a good rally. And a falling wedge or a falling trend channel under such circumstances happens to be a continuation pattern. And as expected, the Nifty did break out of this trend channel on the upside. This pattern breakout gives us a target of 5000 on the hourly charts.

But as already mentioned, it worries me that the Nifty stayed within a very narrow range today after a strong opening. I had mentioned yesterday that a ‘trending’ move may come about and today’s move was definitely not trending in any way. If we look at the tick by tick chart or the 5 minutes chart of the Nifty, we would see that the Nifty stayed sideways all day and didn’t give us a clear trend. What gives us solace was the fact that in the last half an hour it went up above its highs of the day and closed at those levels too.

As for the prediction for tomorrow, there is resistance close by near 4650 while support is also not very far off near 4570. A break out of this range should give us a decisive move. Another worrisome fact is that on the chart, while the Nifty is making higher highs, the Relative Strength Index (RSI), during the same period, is making lower highs, as has been marked by the green arrows. This indicates bearish divergence and a break below 4550 would indicate a trend reversal. So, in spite of the breakthrough today, the Nifty continues to be range bound and it is wise to be cautious. Probably, it is just an attempt to trap the bulls.

My readers would think that even in all this bullishness when the Nifty is moving up everyday, I still talk about bearish things only. Well, I am normally not so bearish but what can I do? This time around this upmove is not giving me the confidence that it normally should. We have seen bullish patterns like a bullish head and shoulders pattern and a falling trend channel pattern but unfortunately the breakouts have been far from perfect. Which is why I continue to stay cautious and that reflects in my writing too. Am I thinking too differently? Tell me readers, what do you think of the markets? What is your view of the markets in the next 2 days, the next 2 weeks, the next 2 months, and in the next 2 years? Let me know how differently I am really thinking. Leave your comments below by clicking on ‘Post a Comment’.

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Crude Oil: Where Will It Stop?

Another weekend. Another day of confusion for me to think of what to write about. That is because markets are closed on weekends and I do not do analysis of Friday’s markets till Sunday night. So, Friday/Saturday posts I have to write about general interest to me and all my readers. Of course, I could write about cricket but that is my interest and I’m not too sure whether it is also the interest of my readers and subscribers too. And, moreover, there is nothing to write about cricket on a day when India lost to Sri Lanka by an innings and 239 runs within four days. Hats off to Muttiah Muralitharan who ended with 11 wickets in the match! No wonder he has the highest number of wickets in Test matches. And I do believe him when he says that he will end up with 1000 Test wickets in his career. Anyways, since cricket is not on my blogging list, let us shift to the next most important thing – crude.

In an earlier post, I had written that there were signs visible that crude was showing signs of topping out. And in fact, that day turned out to be very close to the final high made in crude. We all know that crude finally broke down a few days later and is now more than $20 off its highs. People are talking of support near $120, some say $110 and some even say $80. I do not have access to charts of crude traded on NYMEX (New York Mercantile Exchange). Hence, I do the analysis based on the charts formed by prices on MCX (Multi Commodity Exchange). Since MCX is an Indian exchange prices are quoted in Rupees.

Seen above is the daily chart of crude since the beginning of 2008 along with a trendline, a couple of Fibonacci Retracement analysis and the Relative Strength Index (RSI). Let us start with things in chronological order. My previous post on crude talked about the presence of various dojis (a day on which the opening price and the closing price is the same or is very close to each other), which made the charts look a little bearish, even though the prices were increasing every day. Also seen on the charts is a bearish divergence between the prices and the RSI where the prices are increasing while the RSI is falling (as marked by the thick trendlines and the brown arrows). Next, let us come to the trendline. The prices finally broke through the trendline three days after that analysis but soon recovered. The trendline was decisively broken about a week later when the crude prices even went below the most recent pivot low. Not only that, yesterday it has decisively broken through the pivot low formed in end of May. What remains to be seen is whether this can be qualified as an intermediate term downtrend or not. Technically, the breakthrough the most recent pivot low and an uptrend line gives quite a bright possibility that the trend may have reversed. However, it is not confirmed till we have a pattern of lower highs and lower lows visible. While lower lows are seen on the chart, a lower high has not been formed as yet. So, we would have to wait for a pullback and see whether the previous highs are broken through or a lower high will be made. Another post on my blog, which did the Elliott Waves Analysis of crude may suggest that an intermediate term high may have already been made.

Let us now see where support is likely. For this purpose I have used Fibonacci retracements. I have used two retracements starting from the lows marked at A and B till the high marked at C. As seen from the chart and the price action in the last two days, support is being found near the 38.2% Fibonacci retracement level of AC and near the 50% retracement level of BC. One possibility is that the prices may find support at these levels and may reverse, which could happen to be a short term (or who knows, a long term) reversal. If the prices do break through these levels, support may be found near 4865 where two Fibonacci retracements of 50% (of AC) and 61.8% (of BC) converge. Support may even be found there. Of course, it may decide to continue going further down. Where it eventually finds support can only be decided by the crude itself and no amount of analysis can say with certainty where the ultimate support would be found.

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Nifty Range Widens - 3800 to 4200

Another fantastic day for the Nifty (and for us) on Friday. The opening wasn’t great and it opened flat and remained so for the next three hours or so, before making a run for the tops. The run lasted throughout the rest of the day and in the end managed to close 145 points above Thursday’s close, which itself was 131 points above Wednesday’s, thus gaining 276 points in two days. Before these two days the Nifty had broken out of a range between 3850 and 4200 to go to a low of 3790 and to close at 3816.

Before these two days of gains, we could have said that the 350 points rangebound movement between 3850 and 4200 had been broken towards the downside and that the new target for the Nifty was 3500. Unfortunately Fortunately, that did not happen and we saw these two terrific days which makes us say that the range has only become broader now, broadly between 3800 and 4200 and a breakthrough on any side should give us a 400 points movement.

Seen above is the daily chart of Nifty loaded with the Relative Strength Index (RSI) and a trendline connecting the highs made in mid May and mid June and extended till now. This downward sloping trendline shows that there is resistance for the index near 4165, which will be difficult to cross. In case this resistance is crossed then we have another resistance which is the top of the trading range at 4200. A breakthrough through the 4165 reistance line will indicate that a breakthrough of the trading range may also take place. In case it reverses from 4165 then the inverse is also true that 3800 on the downside may also be broken. A clear uptrend will emerge when the top of the trading range at 4200 is broken through and if the Nifty manages to cross its previous pivot high at 4215.50. Indications of this trading range being broken through on the upside are bright since this is the first time on daily charts that a positive/bullish divergence between the RSI and the prices is seen, as seen from the brown trendlines and green arrows. A positive/bullish divergence occurs when the prices make lower lows while the RSI, or any other oscillator indicator, make higher lows. But a divergence cannot be taken as a confirmation of a reversal in trend. It only gives an indication that a change in trend may take place, whether it happens or not is for the market to decide. After all, there have been events in the past when the weather becomes all cloudy and dark and yet it does not rain.

Whether a low has been made in the short term or there may be more downside is difficult to say at the moment. It all depends on how the government, the opposition, the crude and the rest of the world behaves in the time to come. Any risk to the government will be taken negatively, crude continuing to fall will be taken positively while global sentiment will affect the Indian markets too in the same manner. What actually happens can be decided by the combination of all these factors and there is no point predicting the outcome of all of these situations. In times like these, just follow one simple maxim – “A trend is a friend and should be followed till the end.” And as of now (till the Nifty crosses 4215), the trend remains down.

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Will the Prime Minister Resign Today?

Yesterday the RBI increased the CRR to 8.75% up 50 basis points and increased the repo rate also by 50 basis points to bring it to 8.5% as against the 8% that it was at currently. This was largely expected by the market, but a small and immediate reaction was to be expected, as our column had predicted yesterday. And that is what happened at the opening bell. The Nifty opened a 100 points down and immediately started recovering from there. It recovered for a couple of hours before it went into a small 30 points range for over 3 hours. Finally, it showed a brief and small spurt in prices in the last 30 minutes.

The UPA-Left meet was expected today on the nuclear deal issue and since that did not happen till the market closed, there was no reaction. It is surprising that the government has yet again managed to buy more time. This time the members of the meeting decided to meet again to ‘finalise the findings’ on the deal. While it was announced that the meeting would take place ‘in due course’, it is not expected to take place before a couple of weeks. Meanwhile, there were rumours (as reported by a news channel) that the Prime Minister, Dr. Manmohan Singh, may tender his resignation before the G8 summit which is to start on July 8, 2008. There is a report of a cabinet meeting being held at 11AM tomorrow. I wonder if Dr. Manmohan Singh will submit his resignation to the cabinet then.

Seen above is the same 60 minutes chart of the Nifty that was shown yesterday, except that it has been updated with today’s data. As expected and discussed in yesterday’s post, the Nifty bounced back from its wave 5 target levels after a positive divergence was seen between the Nifty and its Relative Strength Index (RSI). If this was the end of the wave 5 of the corrective wave C, it would mean that the bear trend has ended today. Is it so? Well, that is very difficult to say right now. That is the problem with the end of trends. It is not possible to say that the trend has changed unless a confirmation comes through. Unfortunately, a confirmation of the intermediate trend changing will come only if the Nifty were to cross 4680, while a warning that a trend change might occur will come if the Nifty were to cross 4530. This level may change with time. Elliott Wave specialists can say with certainty whether the trend has ended or not even before the confirmation comes. But I hear no analysts shouting from the rooftops as yet that this is the end. I, myself, am no specialist of Elliott Waves but my analysis says (considering that our wave counts are correct) this may have been the final low made by the Nifty in this downtrend. However, if Dr. Manmohan Singh does resign tomorrow, we shall have another deep knee jerk reaction which will lead to capitulation and then a final low being made. It is difficult to say whether a final low would be made now (in a day or two) or shall we have to wait till the last week of August as our analysis on Fibonacci techniques suggested in an earlier post.

The Nifty opened about 100 points down today but I wouldn’t go as far as to say that it was capitulation, mainly because there was no selling climax. In the absence of a capitulation and a selling climax, it will be very difficult (and risky) to say that a final low has been made. What options are we left with? A short term uptrend shall be signified above 4328 while an intermediate term uptrend, as already mentioned, shall be confirmed above 4680. I’m afraid, at the moment we do not have too many options but to wait and let the market tell us what it wants to do. I would be much more confident about predicting the markets after the government falls. Let us see if that does happen.

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Repo Rate Hiked, No Major Reaction Expected

The Nifty opened in the positive today and then had a few volatile sessions where the market was taken up, brought down, taken up again, brought down again and stayed in a range of 4490-4540 throughout the day. It finally closed the day at 4523, 73 points in the green.

Before I delve further into the newsletter, I must apologise for posting just the charts yesterday without much analysis and commentary. Actually, it was pretty late when I started last night and was already feeling sleepy when I started.

Today, I have the 30 minutes chart of the Nifty for you. A little bit of on-the-chart-analysis yesterday told you that there was some positive divergence visible between the price and the Relative Strength Index (RSI). A positive divergence, or a bullish divergence, occurs when the price is making a lower low or a lower high and an oscillator indicator (like RSI, MACD, Momentum, Rate of Change etc.) makes higher lows or higher highs during the same period. This positive divergence has been marked by the thick brown lines in the chart.

Another area on the chart marked by a brown double sided arrow is the gap created three days ago which still remains unfilled. One of the characteristics of a gap is that they are either filled very quickly or remain unfilled for a long time. This gap should have been filled by now. The reluctance of the price today to go into the gap territory is clearly visible on the chart. This may not be a very good sign for the markets. A double resistance is close by at 4560 which is the 23.6% Fibonacci retracement level and the green coloured downward sloping trendline.

In case the Nifty were to cross this resistance, it should go on to fill the gap and reach the 38.2% retracement level at 4675 or find resistance somewhere within the zone of resistance marked by the black rectangle between 4670 and 4720. The RBI has increased the repo rate by 25 basis points from 7.75% to 8%. A major part of the market was expecting some sort of intervention, following the petrol and diesel hike, by the RBI before their next credit policy which is due in July end. Since a major part of the market was expecting a hike, it may have an immediate knee jerk negative reaction on the markets but no major downside owing to the rate hike is expected. Of course, a major downside based on technical factors (like the gap not being filled or the previous low of 4370 being broken) cannot be ruled out. The best thing would be still to maintain a cautious view.

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Short Term Technical Rally/Bounce Back Possible

The Nifty, boosted by strong Asian cues, opened in the positive today and stayed so for the first half of the day. It was probably the weak European markets, though they have also recovered by now, on opening that triggered the fall in our markets. And the fall was strong enough to bring the Nifty down by 80-85 points from its highs, thus giving us the fourth consecutive day in the red.

Seen above is the 60 minutes chart of the Nifty. While, the downtrend is clearly visible with lower highs and lower lows in place, yet there are some short-term positives visible on this short term chart. First of all, the price has now reached the downward sloping trendline which has provided support to the prices 3-4 times since the last one month. Not only that, it also reversed from the line and has shown one blue candle at the end. If we concentrate on the price movements in the last two days, 26th and 27th, we can see that the price has been making lower lows while the Relative Strength Index (RSI) during the same period has been making higher lows, thus creating a positive divergence between the price and the RSI. The same has been emphasized with the downward and upward sloping arrows. Another positive which is not visible on this chart, but is there on the daily charts, is that the RSI has found support at 40 and has flattened at that level.

An upward move could find resistance near 4900 and above that it could go on upwards to 4935 which will confirm a short term uptrend. This uptrend could take the Nifty between 4990 and 5010. A move to these levels could be used as a shorting opportunity. I think taking naked short positions is a risky game which risk averse traders should not enter into, but low risk shorting opportunities like buying puts (one could go for 4800, 4700 or 4600 June puts) or bear call spreads (e.g. buying 5000 call and selling 4600 or 4500 June call) is definitely a good opportunity. For reference sake, the 4800, 4700 and 4600 puts were available for Rs.156, Rs.118 and Rs.88 respectively at the end of the day while the 5000, 4600 and 4500 calls were available for Rs.93, Rs.320 and Rs.395 respectively.

Once again, do not be tempted to take long positions if the market does go up tomorrow. It makes sense to create long positions only if 5070-5080 levels are broken on the upside.

Uma, a small time trader herself, writes about her trading experiences in the form of a personal stock diary on her blog and it happens to be a good read. Incidentally, she also left a link to my blog on her blog. Thank you, Uma.

Well, that’s all for today.

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Support Found, Double Bottom Possible

So, the global cues didn’t seem to matter today. Dow Jones was marginally down, Asia was mixed. Our markets bounced back from the technical support levels and kept going up through the day. Even in the last 30 minutes it just lost about 10 odd points. No big profit booking or selling on rallies seen.

I have got a very interesting 30 minutes chart of the Nifty today. As seen from the thick green lines, the Nifty seems to be making a double bottom pattern which is also known as a ‘W’ pattern with the neckline at 5065 as shown by the dashed green line. This means that this double bottom pattern will be confirmed if, and only if, Nifty were to go above 5065. If this were to happen then the next target on the Nifty will be 5180. But, that is not all that there is to it. There is another downward sloping trendline which might (and probably did today) provide resistance to Nifty. We will assume this resistance to have crossed if the Nifty were to go above 5030 tomorrow. Luckily, it is not very far from the current levels. Just about 20 points away. On the downside support is at the same levels, between 4910 and 4930.

Ranbaxy has been inching upwards within this 50-60 points wide channel since the last three months. An interesting observation that can be made from this chart is that the channel may be rising but the RSI has been making lower highs during the same period, thus showing a negative divergence between the price and the RSI. This is bearish for the stock. I may have mentioned this before but a divergence has the same relationship with the prices that dark clouds have with rain. Dark clouds do not necessarily mean it will rain similarly a divergence does not necessarily mean that the prices will move in the direction expected, provided there is no break in the trendline. But as soon as the trendline is broken the price starts moving in the expected direction. This means that in this case, there is a slight weakness in the stock but it is not a sell, definitely not a short sell, until 465 is broken on the downside. Another negative sign that can be seen in this chart is that this time around, the prices failed to reach the top of the channel. When the prices are moving in a channel, they are expected to touch alternately the top and then the bottom of the channel. A failure to reach either the top or the bottom is known as a return line failure.

This is the daily chart of Tata Steel. It seems to have gone through a double resistance line between 850 and 860. One is a downward sloping trendline almost 7 months long and the other an upward sloping a month longer. The breakout comes with a large blue candle and that makes it all the more simpler for us to identify whether the breakout is genuine or not. I would have been happier with heavier volumes but today’s volumes were just a little better than average. Buy with a stop below 830 for a target near 1050.

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Markets Tumble as Crude Advances

The US markets (Dow Jones) was down over 200 points last night (Thursday) on concerns of crude oil reaching a record high of $123 a barrel. Even the Asian markets were weak this morning and we were bound to go down with weak global cues. It was because of this reason that the Sensex opened more than 200 points down while the Nifty opened about 50 points in the red and then stayed down all through within a range of only 30 points throughout the day.

We have the 30 minutes chart of the Nifty with us today and there are some observations that we can make from it. The support trendline on this chart is lower than it was on the 60 minutes chart. Here we have support from the trendline at around 5070, which has not been broken as yet. The highs made between 5065 and 5070 on 22nd, 24th and 25th of April also provide support at these levels, which has been signified by another trendline. And then we have another trendline, and this time a downtrending one, which signifies that prices should go up if they cross this trendline at 5100. This last trendline, if seen in conjunction with the RSI signifies a positive divergence, which means that while the prices have been coming down during this period, RSI has remained more or less stable. There is another trendline, which connects the high made on 7th April and the lows made on 15th and 16th April, which also provides support at 5070 but that has not been shown here to avoid two things – firstly, and more importantly, confusion, and secondly, excessive analysis, because excessive analysis leads to paralysis, also known as analysis paralysis, says Chris Garrett.

The price of crude oil has more than doubled in the last year and a half, has become six times in the last six years and has become eight times in the last nine years. Some of the causes of rising crude oil prices have been discussed in one of my previous posts titled “Renewable Energy”. Incidentally, this article has also been published on Reuters.

This article on Bloomberg writes that countries like China, India, Russia and the middle east may be responsible for the rising crude oil prices. A few days back President Bush too attributed the rising food cost to China and India. While that may have been a little far-fetched to swallow, Bloomberg (rather, the International Energy Agency in Paris) may well be right about its claim, though if we compare the per capita consumption, US is still consuming 10 times the energy than India does.

Dance with shadows says that The burden of the rising crude price has a huge bearing on the profitability of many industrial units in India. Commodities such as aviation turbine fuel (ATF), naphtha and bitumen have witnessed a huge price increase during 2007-2008. These products are selling at market-determined prices. Their prices are up by 27-39% year-on-year. It is expected that the rising price would have a huge impact on air travel, power and polymers sectors directly. We need to prepare to pay more for most manufactured products in the future.

This clearly shows that these increasing crude prices will have an effect on the inflation in our country and CRR hikes and interest rate hikes may not be the only solution. Maybe that is why the markets went down today, fearing the worst. It could very well be the same tomorrow, depends on global cues. Plus, the inflation data is also due out tomorrow. Let us cross our fingers and hope for the best. Technical Analysis does help buy but sentiment holds the key.

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