Back in an Uptrend, Target of 5180

As expected and as seen on this 30 minutes chart, the Nifty moved up today, thus accomplishing two major achievements on the short term charts. First, it signified the end of this fortnight long downtrend and second, it confirmed a double bottom pattern and gives us a target of 5180 on the Nifty. During the day the Nifty did face some selling pressure but then found support at the neckline and immediately changed its direction.

While a target if 5180 is there but in an uptrend the Nifty can go much higher and on the way up may encounter some areas of resistance near 5200, 5230, 5250 and then 5300. A move above 5300 should be relatively smooth till it reaches between 5440 and 5500. Support on the downside is now at the neckline of the double bottom pattern at 5060.

Hindalco Industries has been moving inside a large contracting triangle since the beginning of the year. The price now seems to have broken through the triangle and with huge volumes too, leaving little doubt about the genuineness of the breakout. It is easy to say that it is a good buy with a stop loss of close to 190. What is difficult to say (and to predict) is the target. Seeing it as a traditional triangle pattern, we get a target of about 270. 270 would be a 35% jump for the stock, which seems unlikely, if not impossible in such a rangebound market. Taking a very conservative and cautious view, we get a target of 230 and a more daring view would give us a target inbetween of 245-250. I would probably stick with a target of 245.

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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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