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.

A Sudden Bullishness Seen on Bearish Charts

In the first half of the day, the Nifty was still uncertain about which way to go. It opened slightly in the positive, came down in the red, went to the greener territories again and then back into the red. Just like a yo-yo. But then a surprise came. The Nifty suddenly started going up at around 1 pm and then there was no looking back for it. It went up as if it was never bearish. But does that mean the bearishness is over. Maybe, but we would need more confirmation before we change our view to bullish. What's going to happen in the future, only the market can tell us. We can only make predictions and predictions can sometimes go wrong too. The only mantra to success is that we recognise the change of trend as early as possible and not try to fight the markets when the markets have proved us wrong. Maybe, just maybe, what we saw today was the first sign of the trend changing.

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.

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!!!

Rangebound Now, Expected to Go Down

The Nifty opened at 5715 today, tried to go up, could not sustain the upmove, went down all the way to 5681 thus losing almost 40 points from its intraday high but recovered a bit to close at 5691, 26 points in the red. This downward movement may have been triggered by the world situation still looking grim and the European markets showing a weak trend during the day. The Nifty, though looking weak, has still not taken a decisive downmove, but sooner or later, will.

Attached below is the daily chart of Nifty. As seen from the chart, it is moving in a tight range between 5635 and 5730. Since the day we suggested that the downward movement has started, Nifty has not been able to break its high on that day. Of course there have been up days (3) and there have been down days (9) during this time (12 trading days) but none of the days has showed a positive sign. I'm surprised that the Nifty is still holding on.

As seen from the chart above, a decisive downward movement can be expected only when the Nifty breaks below the lower end of the range at 5635. And the blue trendline is going to provide support to the Nifty near 5470 levels. A break below the trendline is sure to make us see lower values for the Nifty but it is too early to comment on that now. As seen from the MACD attached with the chart, we can see that in the last 15 days, it has been sloping downwards suggesting weakness in the Nifty. Even the RSI not being able to cross 60 despite 3 tests suggests that there is no strength left in the markets.

Attached above is the daily chart of Pantaloon Retail, which has today shown its weakest closing of 186.75 since 18th Sep 2012. The next supports that I see on the charts stand at 177 and then 166. I reckon, it may be a good idea to sell the stock for these targets maintaining a stop loss of 200.

Attached above is the daily chart of McDowells, which is again showing a lot of weakness but still holding on. As seen from the chart, the stock is finding it difficult to go above 1300. It has a bit of support near 1200 but there is a bearish divergence seen on the charts with the RSI and the slow stochastics. The downward sloping MACD also shows weakness and it has already given us a sell signal on 12th Oct 2012. If you have holdings in the stock, it is a good time to exit while fresh short positions may be built up below 1200 with a target close to 1050.

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!!!

Downward Movement Starts

The Nifty opened stronger about 30 points up on Friday but heavy selling to the tune of Rs.650 crores by Emkay Global on behalf of an institutional client led the Nifty to touch a low of 4888.20, down 899.40 points (more than 15%) below the previous close. It is said that the quantities entered by Emkay Global were erroneous and that’s what sent the Nifty into a diving spree. You can read the complete story here. Such lows/highs made by the indices and stocks due to erroneous trades should be ignored and that’s what we are going to do today. Ignore the lows. But the fact that institutions are prepared to sell worth Rs.650 crores indicates that smart money may be getting out soon. 

Attached above is the daily chart of Nifty and shows that on Friday the body of the candle completely shadows the previous day’s candle and has formed a bearish engulfing pattern. Ignoring the freak low made by the Nifty, the close itself was about 40 points lower than the previous day. This is fully in conformation to our previous view that a correction may be on the cards and that it is a time to remain cautious. As mentioned earlier, a downward move at this stage may take us to levels of 5400 or thereabouts. However, there may be minor supports inbetween at 5695, 5645, 5535 and 5435. The Nifty may go down all the way to 5400 or find support at one of these levels. 5435 looks the most probable to me at this stage but we’ll just let the market decide as to how low it wants to go. 

Attached above is the daily chart of HDFC Ltd. As seen from the chart, HDFC prices lost ground on Friday losing almost Rs.40 in a day. This downward move not only brought the price closer to the trendline, but also has shown a bearish candlestick pattern, which suggests that further downside may be there and the prices may not find support near the trendline. This view is confirmed by the MACD and RSI, both of which show a bearish divergence with the price. HDFC has shown the weakest closing since 9/11 (11th Sep 2012, I mean), the last one month. I would suggest a sell on the scrip once the trendline is broken near 740-742 with a stop loss of 775. One could expect a first target of 691 and you could continue the sell position for a second target between 660-665. 

Attached above is the daily chart of Gold alongwith my favourite choices of indicators, namely the RSI and the slow stochastics. Another one of my favourites, the trendline is also plotted on the chart. As shown here, Gold has been in an uptrend since the beginning of the chart, with regular corrections inbetween and now, after a deep correction, it has come very close to its trendline which tells us that we may be close to an intermediate term bottom. Also supporting it is the slow stochastics which is now moving below 20. By measuring the Fibonacci retracement of the rise from 30098 on 7th Aug 2012 to 32783 on 13th Sep 2012, it was found that the 61.8% retracement level is at 31105 and that is where Gold seems to have found support. Some possible scenarios that come to mind is that Gold may go down one more day next week to touch the trendline (between 30850-30900) and then rise again. The second possible scenario seems to be that Gold may hover at the current levels for the next few days and wait for the trendline to come and touch the prices. And the third possible scenario, and maybe the most probable one that Gold may start rising from here itself since it has started showing a series of reversal candlestick patterns on the charts. 4th Oct 2012 saw the formation of a bullish hammer while 5th Oct saw the formation of a harami. I would be a buyer in Gold with a stop loss below 30700 and wait for targets of 32000 and above. 

An interesting fact to note is that in the international markets, Gold has risen almost $50 from 13th Sep 2012 from $1730 to $1780, a rise of 2.9%. In the Indian markets, however, Gold has fallen from 32783 to a low of 31041 during this period, a fall of over 5%. You must be wondering, why this disparity and shouldn’t Gold be trying to play catch up now? Well, not exactly, because the US Dollar in this period has fallen from 55.375 to 52.115, a fall of over 6%. So, even though, in dollar terms Gold has gone up and in rupee terms, it has come down, it can be safely attributed to the falling dollar. Now comes the tricky part. Gold may be in for a bit of a correction (downwards) in the international markets in the coming days, and so will be the dollar (upwards). If both happen simultaneously, nothing much is going to happen in Gold in India. If Gold falls and so does the dollar, Gold in India may go down further. If the dollar starts improving and Gold continues to go up, we may be in for a sharp recovery. In this light, I wouldn’t go about keeping targets of 33000 and above but be more realistic and will probably book my profits near the 32000 levels. In rupee terms, frankly, I don’t see an extremely bright Diwali for Gold but a slightly moderate one. 

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!!!

Short Term Bullishness, Intermediate Term Bearishness

After the US bailout package was defeated in the House of Representatives on Sep 29 228-205, the Senate approved the same last night with a thumping majority 74-25, says Bloomberg. The package would be sent to the ‘House’ again Friday afternoon for reconsideration. Many republicans who voted against the package last time may reconsider and switch their votes in favour of the bailout package. Despite the Senate’s approval US stocks remain down today with the Dow Jones trading with a loss of 330 points. European markets also remained weak losing between 2 and 3%. Gold has lost a few dollars while crude has slipped to $94 a barrel. The only thing that remains strong in this kind of a market is the dollar, and who can forget our very own Nifty.

Seen above is the daily chart of Nifty. Just like it was seen a few days back, the Nifty again displayed long lower shadows on its candles, which happens to be a short term bullish sign. The 5,3 stochastics oscillator, too, slowed down by 3 days has given a buy signal. The Nifty seems all set for a short rise from here. Possible resistance levels for this short spurt seem to be near the two green trendlines drawn. For tomorrow, one of the resistances lies near 4043 and the other lies at 4075. The Nifty, on Wednesday, after touching a high of 4000.50 dropped and finally closed at 3950.75.

Well, the Nifty is displaying short term bullishness, as the charts suggests, but also, as is evident from the charts, we still happen to be in an intermediate term downtrend with the Nifty clearly showing a pattern of lower highs and lower lows since early August. Now, which of these trends will prevail in the short term is difficult to say. It could be a downtrend since there is bearishness all across the world. But that has been there since quite a few days now, yet our Nifty is displaying strength. The Nifty may decide to go up first, touch one of the trendlines, and then fall back. And finally, the Nifty may even decide to slip from where we currently are. What will be its final decision, will be seen tomorrow. Till then be careful at 4043, 4075 and 4100 on the upperside and 3800-3850 on the downside.

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!!!

Stochastics Too Gives Sell Signal

After flat American and Asian markets, nothing much was expected from the Indian markets too. And, as expected, the opening was nothing to talk about. Today was F&O expiry day and on F&O expiry days markets generally remain volatile. That was not the case this expiry. The Nifty, after a week opening, started going down and it wasn’t until 1:45pm that the fall stopped. But by that time, the NSE index had already shed about 80 points. A little bit of recovery came about post 2 but as the market neared closing, the movement too stopped and the Nifty slipped into a 10-15 points range after that. Today, Thursday, was a good day for the European markets and so does it look for the American markets. The London FTSE and the German DAX closed with gains of 2% while the French CAC was up 3%. The Dow Jones, at the time of writing, was trading with gains of almost 3%. Crude had increased to $108.65 intra day but had come back to $106.90.

Attached above is the daily chart of Nifty along with two moving averages and a stochastics oscillator. The chart has been zoomed in to show only 3 months data so that we get a closer look at the moving averages. The thick green line at the bottom is the support that the Nifty respected twice at 3800. Among the moving averages, the green one is the 21 day moving average while the brown one is the 10 day moving average. Both moving averages are important and provide good signals in their respective time frames. Here, as discussed in one of my previous newsletters, the prices had come below the 21 day exponential moving average and had given a sell signal on 11th Sep 2008. The 10 day moving average also gives similar signals, except that it gives a quicker response than a 21 day moving average. Here, the prices are below both the moving averages and both of them should provide resistance to the Nifty. The 10 day moving average provides resistance near 4170 while 4229 happens to be the level for the 21 day moving average. As regards stochastics, the 5,3 day stochastics slowed to 3 days has given us a sell signal yesterday.

With the American and European markets good today, chances are that we might open strong too. In case we don’t, or if we do and then come down then support comes in near the green line (the thinner one) near 4073-4075. A move below this level should, rather could, bring us to levels of 4000, 3950 and possibly 3800. With the new F&O series taking over tomorrow, let us see how it makes the Nifty behave.

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!!!

Nifty Displays Short Term Bullishness

I feel great pleasure in informing you, my readers, that today happens to be my 200th post on this blog. What Brian Lara has done 9 times, Don Bradman 12 times, Rahul Dravid 5 times, Sachin Tendulkar and Sunil Gavaskar 4 times each (a score of 200 and above), I have done once :-). It's nice to be in this elite club of 200 and above.

The Nifty opened with a downward gap of about 50 points consequent to bad American and Asian markets. After some initial hitches and an hour of range bound trading, it staged a good recovery to fill the gap with which it had opened but at 12:30pm it started the southward journey once again and this time it was a consistent fall. A little bit of recovery in the last 30 minutes made the Nifty end the day with a loss of 68 points and the BSE Sensex closed 238 points in the red. In the international scene, as the things stand now (at the time of writing), crude, after making a low at $101.50, is now trading close to $102.50, FTSE closed about 50 points down, while Dow Jones is about 90 points in the green after a loss of 280 points yesterday.

Seen above is the 30 minutes chart of the Nifty. Along with the prices, at the bottom is shown the stochastics oscillator. As can be seen from the chart, the Nifty opened the day with a huge upward gap on 8th Sep 2008. This gap up opening was fully closed/filled today and it was then that the recovery came about in the last 30 minutes. Also shown on the chart is a small trading range within which the prices are moving for the last six days. This range is between 4340 and 4520. A move outside this range will give us a tradeable move in the short term. A trendline in black color has also been drawn on the chart connecting the pivot lows formed from 28th of last month till date. If one looks at the stochastics oscillator, one can see that a buy signal was given today in the last 30 minutes when the %K line (red) crossed the %D line (black) upwards, which is again a short term bullish sign. So, it makes sense to buy Nifty or Nifty calls for the short term with a stop loss of 4380.

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!!!

Nifty Forms Smaller Range Between 4350-4520

Hi readers, I had gone for a meeting today in Noida and came back home around midnight, so won't have much time to write the analysis. However, am sharing with you whatever little analysis I have managed to do today. Nifty opened weak today but then recovered during the day, even managed to cross yesterday's close but by closing time had dropped again to close in the red, thus forming a doji.

Attached above is the daily chart of the Nifty along with the trendlines and trend channel as shown in yesterday's chart. A new addition today is the stochastics oscillator at the bottom of the chart. As seen by the stochastics, it has given a sell signal 3-4 days back and is continuing to show that a short position should be maintained. The MACD (not shown on the chart), on the other hand, still hovers around the signal line and is generating whipsaws. Whipsaws are natural when the markets themselves are confused. Dojis and trading ranges are signs of confusion and decision. As has been mentioned in the past few newsletters, a tradeable move would come only if the Nifty were to go above or below the 4200-4650 range. Looking closely at the prices, one can find that a smaller trading range between 4350 and 4520 has formed in the last five days. Short term traders may like to trade a range breakout from 4350-4520, depending on which side it breaks out on. As can be seen by the trendline, the Nifty has yet again failed to cross this resistance line. This is proving to be quite a resistance.

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!!!

Nifty May Fall to 3500, Started Looking Attractive

The Nifty opened today and started going up but like most of the days these days, the excitement lasted only about an hour or so before it started slipping down again. It made a low at about 3840 and started some recovery but soon after the European markets opened it started coming down again. The European markets were weak and at one point the FTSE was about a hundred points down but recovery in the late afternoon session (in Europe – by which time India had already closed) took all European markets well in the green (about a percent up) except FTSE which closed 21 points in the red. News on the international front is good today. Dow is trading 200 points up at the moment while the crude is trading below $135 a barrel. The American markets increased after results from Wells Fargo, a huge mortgage underwriter and servicer, which according to Bloomberg, came out with “better than expected” results after their profits declined by 23% and EPS was 53 cents a share against expectations of a 50 cents EPS. This was enough to make Wells Fargo jump 24% in a day. Compare this with Infosys results and the price movements, and we know how negative the sentiment in India is.

Seen above is the monthly chart of Nifty for the last decade. The indicators along with the price chart are the Stochastics oscillator (in green) and the Relative Strength Index (RSI) at the bottom. Never before in the history of the Nifty was the Stochastics down to these levels. Today was the all time low of the Stochastics indicator (5,3,3) in the last 16 years. As far as the RSI is concerned, it is only on one occasion in the last 16 years that it has went down below 40 (in September 2001) otherwise it has always found support at 40. Today the RSI was 44.43 and hopefully, this time too it may reverse from 40 (we assume such a long trend to continue until it is broken). The price chart shows a little more downside because the long term trendline drawn from the 2003 lows shows that there is support near 3500, which is in line with the target that we had calculated in yesterday’s post. Both the RSI and Stochastics show that the bottom may not be very far away.

Fundamentally too, the things are not looking too bad. According to the NSE website, the Nifty today closed with a Price to Earnings Ratio (P/E) of 16.33. At the same rate, assuming the price does fall to 3500, the P/E of the Nifty too would fall to 14.97 at current year earnings. Going forward, assuming that the earnings would grow at only 7% (the same as the GDP growth) per annum, the Nifty would then be available at only 13.99 times FY09E and 13.08 times FY10E. Today, it is available at 15.26 times FY09E and 14.26 times FY10E. Even during the Sep 2001 lows (after the Twin Towers crash) the Nifty was trading at a P/E of between 12 and 13 times earnings. Considering that the economic conditions may be better 6 to 12 months down the line, don’t these P/E levels of 15 to 16 times seem attractive? To me, they do.

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!!!