Head And Shoulders Cancelled

The Nifty opened on a bearish note today and continued to slide down throughout the day to close at its weakest point at 4705 losing more than 200 points, which works out to a little more than 4%. This was not what we expected from the markets after a bullish head and shoulders was confirmed on the 30 minutes chart.

What do the markets now say? One thing is for sure, the head and shoulders made on the 30 minutes chart has now been cancelled and with that the Nifty has moved into a short term downtrend. It has given a signal to all short term traders to exit long positions and wait for a further dip to re-enter the markets. The investors are already waiting on the sidelines to enter at lower levels. Their stop is much wider and is close to 4500. But, at what point should we make a re-entry? The answer to that is, only when the market tells us to. And that will happen when the short term trend changes to up again, which means a move above 4970. We may get stopped out again like this time but that is the only wise thing to do.

Let us look at the possibilities now. Seen above is the 60 minutes chart of the Nifty. We have two lines here today. One is the solid blue line and the other is the dashed brown line. The dashed brown line is where we had drawn the head and shoulders pattern yesterday, which got confirmed yesterday and cancelled today. There is a possibility that our interpretation was wrong. Maybe the market did not consider the small ‘s’ a shoulder at all and considered it to be a part of the head only. Maybe the shoulder is being formed now, and that too of a larger and a straighter head and shoulder pattern. If this is indeed the second shoulder then we should have support between 4600 and 4650. It is also possible that it may not be a shoulder at all and is actually a new decline. In that case, it could go and find support near 4480 or may continue southwards beyond that too.

We should just wait and see what the market wants to do. Wisdom lies in following the market and taking positions accordingly. There is no point trying to catch a falling knife or try to jump in a running train.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

Nifty Head And Shoulders Confirmed

The Nifty, which was just 57 points away from going through the trendline on Thursday, chose to remain in a narrow range below the trendline before showing a decisive surge in the last hour of the day. This surge took it to a high of 4968 in the last 30 minutes before it closed the candle at 4950.

The chart shown above is just a replica of the chart shown in the previous newsletter (with data for the last day added in and with a few extra lines). As can be clearly seen from the chart, the Nifty has managed to make a perfect head and shoulders pattern and has also managed to go through its neckline. You can see a dashed brown line from the neckline to the bottom of the head (marked by the brown arrow). This is the line that gives us the target. We get the target by copying this line to the place where the Nifty actually broke the neckline (marked by another brown arrow). This gives us a target of somewhere close to 5350 on the Nifty. There may be some zones of resistances inbetween which have again been marked by horizontal dashed brown lines.

Under ideal circumstances, this forming of the head and shoulders pattern and its consequent confirmation (of breaking through the neckline) should take the Nifty to its theoretical target of 5350. However, there are a number of occasions when the patterns fail too. This failure could be in terms of the pattern not getting confirmed, the pattern giving a false confirmation or a failure to reach the price target. For example, the bearish H&S pattern in the RSI formed a few days ago turned out to be a failure. But in this case, we can see that the pattern has been confirmed. We would consider this to be a false confirmation if the Nifty were to go below 4850 and we would consider it a failure if it fails to reach at least 5300.

Dr. Reddy’s Labs, on its 30 minutes chart, has made a bullish head and shoulders pattern and seems to have multiple shoulders. While it is completely possible to have multiple shoulders in a head and shoulders pattern, yet it is not possible to have more than one head because then it would become a double bottom/top or a triple bottom/top instead of remaining a head and shoulders pattern. It currently seems to be going through a pullback. Consider buying it between 580 and 582 or above 594, whichever comes earlier. A target of 635 is possible. A stop loss of 563 is advised.

Infosys also seems to have made a bullish head and shoulders pattern on its 30 minutes chart. It is still unconfirmed but if the price were to go above its neckline at 1550 then it would be confirmed and would give us a target of 1735. Consider buying above 1550 for a stop loss of 1420. The stop is a little wide but we cannot change what the charts say. We either follow them or we don’t.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the markets today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

I Think The 'Bulls' Have It, The 'Bulls' Have It

The Nifty moved down in the first half of the day but in the second half it moved up to gain all that it had lost. This volatility may have been because of the F&O expiry today. There were a lot of short positions built up which had to closed/carried forward today. Maybe this upmove was because of that short covering. If it was only because of the short covering that the market went up then it may soon find resistance and come back. That will be known only after the event happens.

We have a very interesting pattern on the 30 minutes chart of the Nifty today. The pattern looks like an inverted head and shoulders pattern which is yet to be confirmed. A move above 4915 (ignoring the movement in the first 30 minutes) should confirm that the bulls are in control of the situation. Not only that, it will also confirm this inverted head and shoulders pattern (incidentally, this H&S pattern gets confirmed above 4900) and that will give us a target of 5350 on the Nifty. Talking of patterns, there are a number of occasions when the patterns fail too. This failure could be in terms of the pattern not getting confirmed, the pattern giving a false confirmation or a failure to reach the price target. The bearish H&S pattern in the RSI formed a few days ago turned out to be a failure.


But, it is quite clear by now that we are in a short term upmove. Signs of an intermediate term upmove will come when Nifty crosses 5370 and will be confirmed when 5550 is crossed. In a short term upmove when bullish patterns come, we should position ourselves on the long side. Well, if this pattern turns out to be a failure, we shall be stopped out. But not attempting an entry now is not advisable because to earn profits one has to take risks too. If you are not willing to risk a failure of the pattern, indirectly you are not willing to make profits. Remember, only those people are rewarded who have the heart to take risks. A strong support comes in at 4750. Below 4750 we may expect a retest of the earlier lows.

ABB has made a double bottom, more commonly known as the ‘W’ pattern and is now ready to move up. It may be worth buying it above 1190 for a target near 1300. One could maintain a stop loss of 1150 for this purpose.


BHEL has a chart exactly like Nifty. An unconfirmed head and shoulders pattern which should get confirmed above 2040. A buy above 2040 with a stop loss of 1920 should give a target of around 2270.

This is the 30 minutes chart of Divis Labs. It seems to have broken through its downtrending line with a slight increase in volumes. At current levels it seems to be a good buy with a stop loss of 1225 for a target of 1430.

On the 30 minute chart of HDFC Ltd. we have yet another similar pattern. As you must have noticed, in all these patterns, the first shoulder and the head are quite well defined whereas the second shoulder is very small, almost like a deformity. Yet the fact remains that it is a shoulder and a head and shoulders pattern has a target which, under normal circumstances, the stock should be able to achieve. Let us, for a moment, assume that we have made a mistake in calling it a head and shoulders pattern and the second shoulder that we are seeing just isn’t there. How do things change then? Well, even if the second shoulder is not there, the neckline will still be the same (even though it will then be called a trendline and not a neckline). And the target? That remains the same too. So, whether, or not, the second shoulder exists, things don’t change for us as long as the neckline (or trendline) is crossed. Consider buying above 2720 with a stop loss of 2600 for a target of 3250.

Till a couple of days back, Ranbaxy was looking like one of the strongest stocks in conditions prevailing at that time. This is a perfect example of how fast things can change. It was making a pattern of a symmetrical triangle, which, technically, can break out in either direction but is normally considered bearish. Once the price has broken out on the downside, things have become clearer and I am afraid, things are looking bad for Ranbaxy. A target of 400 is quite likely, at this point of time. Be careful at around 415. In good conditions, it might reverse from there too.

Fan lines are visible in this 30 minute chart of Reliance Industries. Like always, in the beginning, a stock finds resistance near a particular trendline. Once that trendline is crossed, it does not change its trend immediately but now starts finding resistance near another downtrending trendline. When this trendline is crossed, it yet again finds another trendline. These are called fan lines. In technical analysis, it is usually said that once a stock crosses the third fan line, it should get a good and a quick move. Maybe, Reliance is ready for just that. Consider buying above 2340 with a stop loss of 2240 for a target of 2510 (conservatively) and then 2600.

Apart from these stocks the cement sector is also looking good while the banks seem to be week.

Happy investing!!!

Update: This article was also published on the website of Chicago Sun-Times.

Read the Full Post Here

Has The Bottom Been Made?

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to the people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

Below is the 60 minutes chart of the Nifty. As seen from the chart, the Nifty comfortably breached the downtrending line which was shown on the chart yesterday. In yesterday’s newsletter we had discussed a number of negatives visible on the chart. Excerpts from that newsletter have been pasted here:

1. The Nifty is finding resistance near the blue downward sloping trendline which is currently near 4675.
2. The last pivot high was the high of the day today which is at 4734.
3. There is a very strong trendline near 4750 on the daily charts and that is more likely to push the Nifty back than the short term uptrend pushing it up.
4. The Relative Strength Index (RSI) has made a bearish head and shoulders pattern, though it has not been confirmed as yet.

Now lets look at each of the negatives one by one.

1. The resistance line near 4675 was broken on opening itself.
2. The pivot high at 4734 was also broken on opening only.
3. The ‘so-called very strong trendline’ also was not hard to cross and was crossed in the first hour of the day.
4. The head and shoulders pattern forming in the RSI was cancelled today.

So, all the negatives ‘went for a six’ today and we are left with positives alone. Is that a good enough reason to buy? Well, maybe it is. But, first of all, a little bit of analysis is required as to why the markets recovered today. Our markets were going down because the US markets were going down. There were fears of recession, which, to some extent, are still there. Because of the sub-prime crisis, the financial stocks in US suffered a lot. So much so, that JP Morgan lost 31% of its value in a period of 10 months, Goldman Sachs lost 39% in only half the time, Lehmann Bros’ stock prices came down by 52% in a period of a month and a half and the worst affected was Bear Stearns which lost 96% of its stock price. It was so badly affected that JP Morgan agreed to purchase it at only $2 per share whereas the price in Oct 2007 was $128.

Now JP Morgan has agreed to pay $10 per share as against the $2 quoted last week. This suggests that the financial stocks may not have been as badly affected as it was expected. This news made the markets bounce back a little. But have the recession fears gone? No, not yet. They will come back to haunt us again in some time. Bad news will, probably, keep trickling in in the months to come. But, for now, there are expectations that the concerns over a possible recession have stabilized.

Another reason why the markets were going down was because of concerns of the Yen carry over trade. Till a few months back, Japan had a no interest rate regime while the interest rates in US were in the range of 4-5%. This gave a very good opportunity for people to borrow money in Japanese Yen, invest in the US markets, earn a return of about 5% per annum and then return the yens interest free. Now, the interest rates in Japan have increased to about 0.5% and interest rates in US have gone down to about 2-2.5%. And the same thing is not very profitable now and with the interest rate differential decreasing and the dollar depreciating against the yen, people were in a hurry to liquidate their positions in the US and return the yens. The situation was so bad last week that a US dollar could only fetch about 95 yens. Now with the Yen to dollar ratio going back over 100, that also seems to have stabilized. So, as far as the US markets are concerned, the worst seems to have been over.

Looking at the India story now, we have seen that the GDP growth of our country has been about 8.5% and above. Sure, there are signs of this growth rate slowing down to between 7 to 7.5%. But that is still a very good growth rate, specially for an economy of our size. No other country having an economy of such size can boast of a growth rate this high except China. That is definitely a big positive for India. And this is likely to continue for a long period of time due to the demographics of India as explained in an earlier newsletter. Talking of the interest rates, US is now down to an interest rate regime of between 2-2.5% whereas India is still in the region of 7-7.5% with no likelihood of a rate cut in the immediate future. This differential is now more than 5%, a large enough differential. Now the yen case may happen in India also that the investors may borrow money in US dollars, invest in India, earn a return of 7-8%, and return in dollars with 2% interest, thus pocketing the differential. This is another reason why the money should now start chasing India. But this is all a long term story. We are still quite confident about the long term story being good for India. But what about the short term?

Yes, the markets did rise quite a bit today and in the process kicked aside all negatives. It did confirm the start of a new short term uptrend but is this the end of the bear market? Was this the bottom? Well, that can never be said with conviction until the next bottom is made. The next bottom will tell us whether this was the bottom or there are more bottoms in store. And yes, 4750 is again the level to watch. It has now turned into a strong support. Resistance comes between 5080-5100.

Nifty calls suggested yesterday would have made very good money today. A big move above 4900 tomorrow MAY signal the end of the intermediate term downtrend too. But we need to wait and watch the movement tomorrow, and more importantly, the next dip. As of now, since the short term trend has changed to up and there are chances of a possible bottom having been made, we should be buyers on any dip with a stop loss of 4480 (the previous pivot low). But be strict about the stop loss. We would not like to get caught on the wrong side of the market.

Happy investing!!!

Read the Full Post Here

Short Term Positives Visible

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to the people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

Gap openings seem to have become the order of the day these days. In the chart below, I have marked all the big gap open days with brown arrows and you can see how abundant they are. Gaps are like mistakes or anomalies in a chart and the prices tend to cover up their mistakes just like we humans try to cover ours. That is why you can see on the chart below that when prices open with an upward gap, more often than not, the prices tend to move down in the second half of the day. And the converse also holds when the prices open with a downward gap.

As traders who use technical analysis, it is our job to make sure that we take trades in which we have a higher probability of making profits. We can never be 100% accurate but if we increase the probability of profits (in the trades that we take) with the help of technical analysis then we’ll never go in a loss at the end of the month. But how do we increase the probability of a profit? By looking at the charts and seeing what the positives in the chart are and what are the negatives.



We are looking at the chart of Nifty everyday and are seeing that there are more negatives than positives. We know that we are in a short term downtrend, an intermediate downtrend and a possible (but still not confirmed) long term downtrend. We cannot go long and make profits, unless the trend changes to up. And that will happen sequentially, which means that first of all, the short term trend would turn upwards, then the intermediate term trend would change and then the long term trend. So, we should be willing to take positions when the short term trend changes to up. But the short term price movements are sometimes very sharp, so we have to be ready and should be waiting at the sidelines to enter whenever the short term trend changes to up. This means that we should know in advance that what is the level after which the trend will change and what is the probability that it is a true breakout. That is where technical analysis comes in handy.

Now, let us look at the positives and negatives in the chart above. The negatives first. As seen on the chart, the Nifty is finding resistance near the blue downward sloping trendline which is currently near 4675. The last pivot high was the high of the day today which is 4734. So, if the Nifty were to cross 4734, we would be in a short term uptrend. But from the chart shown in yesterday’s newsletter, we saw that there was a very strong trendline near 4750 on the daily charts and that is more likely to push the Nifty back than the short term uptrend pushing it up. And then there is the Relative Strength Index (RSI) which has made a bearish head and shoulders pattern, though it has not been confirmed as yet.



Now let us look at the positives too. One, the Nifty is finding some decent support near 4480 and it is likely that it may find support around those levels the next time it goes there. The second positive factor is the positive divergence visible between the price and the RSI. This means that the price is continuing to make lower lows while the RSI is making higher lows. This is a positive sign and signals that a change of trend MAY be near. And the third positive thing is that the last candle today is a doji which means that the opening price and the closing price of the last candle is almost same. We know that dojis are known to occur (mostly, though not always) at the end of short term declines/rallies. While dojis hold more significance on daily charts than on 60 minutes charts, yet the presence of a doji is a positive.

So, looking at the short term charts there are more positives than negatives. Yet, we cannot rule out the presence of a strong resistance line at 4750 on the daily charts. Under these circumstances, it may be advisable to wait until the price decisively breaks 4750. Though, unhedged long positions are not advisable on the Nifty now, yet buying some calls may not be a bad idea.

Happy investing!!!

Read the Full Post Here

Nifty Fails to Sustain Higher Levels

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to the people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

Both the Dow Jones and the Nasdaq ended on firm territory on Thursday while European Markets remained a little subdued. The Dow Jones Industrial Average (DJIA) now stands at a very crucial resistance near 12400. If it is able to go past this level, we can expect it to go upto between 12750-12850 levels where again it will find resistance. Beyond these levels, a double bottom would be confirmed which should take it well past 13500. The Relative Strength Index (RSI) has consistently being making lower highs since May last year and a move past 12400 should be able to break that jinx. With improvement in the DJIA, we can expect some sanity to return in our markets too.

Seen above is the daily chart of Nifty. Those of us who can study charts will know that this chart does not present a very rosy picture. On the other hand, it is still looking very gloomy. The Nifty is continuing to make lower highs and lower lows (which suggests that the trend is bearish), it continues to trade well below the 200 day moving average for a couple of weeks now and, in the process, it has broken the 21 month old trendline (brown line) too. On Wednesday, it did try to go past the trendline but was pushed back down, which was expected, and which is why I had recommended to use all rallies to exit long positions. Today also, it looks the same.

But there are a few positives also visible on the chart today. The first being the fact that the Nifty is finding support near our first dashed brown line between 4480 and 4500. And secondly, the RSI is refusing to go below 32 after the January fall despite the Nifty making lower lows each time. As suggested in earlier newsletters, the break of this support near 4480 will push the Nifty to the next dashed brown line near 4100. As of now, that seems to be a likely possibility. A move above 4750 will change the short term trend of the Nifty to up while the intermediate trend will change to up on a move above 5020. We should consider buying only after the short term trend has changed to up. Till that happens, use rallies to exit long positions.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the market today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

Fed Rate Cut and Long Weekend to Bring Volatility

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to the people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

The Nifty opened a few points in the green today, came down in the next hour and a half to find support between our levels of 4480-4500 and then staged a dramatic recovery to go up more than 100 points above yesterday. But in the last one hour it came across heavy selling which pushed it down to 4526 to close only about 35 points in the positive.

Seen above is the 60 minutes chart of the Nifty along with its Relative Strength Index (RSI). The bearish head and shoulders pattern seen on the RSI yesterday did not get confirmed today also and it went on to make another small shoulder today. Sometimes multiple shoulders are also possible in such a pattern. This pattern would stand cancelled if the RSI were to go above 60. The Nifty continues to trade in a short term downtrend. This trend would change to up if it were to go above 4620 (a new pivot high made today). Support is likely between 4480 and 4500.

At the time of writing of this newsletter, Dow Jones was up 285 points, Nasdaq was up 50 points and FTSE 100 was 176 points in the green. All of them are positive on expectations of a 100 basis points rate cut to be announced by the Federal Reserve in the US later tonight. This rate cut is essential to bring in more liquidity into the system which should help the US economy, which is fast slipping into a recession. This expected rate cut has helped the US markets to go up today and our markets should follow suit when they open in the morning. As suggested in yesterday’s newsletter, the Nifty should find heavy resistance between 4700 and 4720 and any rally to these levels should be used to cut long positions or to create fresh short positions.

Markets are closed on Thursday on account of Eid, on Friday on account of Good Friday and on Saturday on account of Holi, though they are always closed on Saturday and Sunday. This four day long weekend may trigger selling in the markets because a long weekend means higher uncertainty than the usual weekend. And it is a well known fact that markets do not like uncertainty, hence we should expect the markets to come down in the afternoon session tomorrow. That is all the more reason why the morning rally should be used to exit longs. The sun outage period of the markets is now over and they will be open between the regular timings from 0955 hrs to 1530 hrs from tomorrow onwards.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the markets today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!! Wish all Muslims, Christians and Hindus a happy festival weekend.

Read the Full Post Here

Bears Steer Markets After Bear Stearns Crisis

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to the people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

It was a bad day for the Nifty and a bad day for the market participants. The Nifty opened with a gap down of 200 points and then showed no signs of support except a little bit near 4500 (as was predicted in the previous edition of the newsletter). But soon it slipped below 4500 too to end the day at 4485.

Seen above is the 60 minutes chart of the Nifty. Now, we are well below our ‘strong support’ of 4700 and that has now become a strong resistance. Any rally from these levels will find resistance between 4700-4720. Many analysts are expecting some support near the Jan low of 4448 and we may see a little bounce-back/consolidation at those levels. While there is no reason why the market should find support there but the fact that many are expecting support there means that they would be willing to buy at those levels and a small rally may be expected. There is a short term positive seen on the charts too. A positive divergence (price going down, RSI holding on) between the price and the RSI can be seen.

But the target of 4100 is still on the cards because we are in a short term downtrend, an intermediate downtrend and a possible long term downtrend too (though, that is yet to be confirmed). The short term trend remains down till 4750 on the upside is not breached. Interestingly, the RSI has made a bearish head and shoulder formation on this 60 minutes chart, while it is not very clear on the price chart. This head and shoulder pattern gives the target of -5 for the RSI. But, theoretically, it is not possible for the RSI to go below zero and very difficult to go below 10. But the fact that 30 may be broken after a bearish head and shoulders pattern suggests much more downside for the Nifty.

In light of this situation, it may be wise to use all rallies to exit long positions or to create fresh short positions. No fresh longs advised till the markets show some sign of recovery/consolidation.

We are still inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

Markets Below Strong Support

A new feature has been introduced in the blog recently. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now, you can listen to this post while driving to work (if your laptop is with you and you have this page opened) or for readers who visit the site on their mobiles can click on the link at the bottom and listen to it.

Today was a terrible day for the Nifty. It opened deep in the red today and with each passing hour it turned a deeper red, so that by the time it closed it was 250 points below yesterday's close while the Sensex closed 770 points in the red. Seen below is the daily chart of the Nifty.

There are quite a few lines here which may become a little confusing for some. The best option is to right click the chart above, click on 'Open in a New Window' and a larger image will open in a new window. Then you can toggle between the two screens (by using either your mouse or by pressing Alt and the Tab key together) and it will become easier for you to read the chart.

First of all let us talk about the blue lines. These were the two parallel lines forming a range within which the Nifty moved for a number of weeks. This range was between 4800-5500, a range of 700 points. The Nifty broke out of this range on Friday last week when we mentioned that the target for this breakdown gives a target of 4100. Coming to the thick brown line, as we had mentioned in one of the earlier newsletters, that this is the line drawn from the lows of June 2006 and Aug 2007 and is a 21 month old line and was providing support to the Nifty at 4700. That low has also been broken today. This may be the first sign that we are entering into a long term bear market now (which will be confirmed if we were to go below 4000). But there are supports in between, which have been marked by the dashed brown lines (highlighted by the blue arrows). The first support is at 4500, which is nothing but a cluster of about 10 days of prices, thus forming a very minor support. The second support and a stronger support is at 4100, which happens to be the pivot low formed in June 2007 and Aug 2007. This support matches with our target of 4100.

Long term traders and investors are now advised to refrain from entering long positions. Traders may like to go short at these levels. By looking at the charts, it does seem to be all gloom and doom. But the fundamentals speak a different story, though not as loudly as a month ago.

I finish today's edition on a gloomy note, but at the same time a word of optimism too. 'When you think that everything is finished, that is just the beginning.' One day the market will go terribly down and everybody will be thinking that there could be no possible way that the markets could recover now (which looks like the situation today) and that will lead to a panic and everybody would want to sell their holdings and would vow never to invest in the markets again. That is the end for those who sell out and when the majority does it, it is known as capitulation. And THAT, my friends, is the beginning. The markets would recover that very day.

Happy investing!!!

Read the Full Post Here

Markets Uncertain

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

Today, we have got the daily chart of Nifty. It has been expanded to see the last 2-3 candles more clearly. Looking at the circled bar, which is known as a candle, formed 3 days ago and marked as circle ‘A’, we find that this candle has a long lower shadow, a very small body and a negligible upper shadow. This sort of a pattern is known as a ‘hammer’ in Japanese candlestick charting, simply because it looks like a hammer. A hammer signifies a short term uptrend. The same pattern, when it comes after a long uptrend, generally suggests a short term downtrend.

Now, let us look at circle ‘B’. We can see that this candle has got a virtually non-existent body, and a long upper shadow, with again a non-existent lower shadow. This sort of a candle is exactly the opposite of a hammer and is known as a gravestone. Since, this is also a doji (a candle which has no body), this is known as a gravestone doji. Gravestones/gravestone dojis are, generally, formed when there is a short term reversal. Today’s downmove after a big gap up is not a good sign and does signify a reversal, unless the Dow surprises us by going up another 400 points today.

Yes, it is true. The short term uptrend, however short it might have been, seems to be over. We are looking at a retest of Monday’s lows at 4650, unless we, somehow, manage to close above 4800 tomorrow and bounce back from there. It has been regularly happening in the past few weeks (ever since the big Monday and Tuesday crash in January) that whenever the markets start crawling a bit higher, a small bad news comes and our markets go haywire. This is what happens in a bear market. Good news are temporary and have no effect on the markets. The Dow closing 400 points in the green yesterday was a big positive (especially when our markets were already climbing) and our markets did open a lot higher. Later in the day the IIP (Index of Industrial Production) numbers came out and the industrial growth was reported to have been only 5.3% compared to 11.6% reported last January and against analysts’ expectations of 7.7%. This is a significant slowdown in production and will, in turn, have an effect on the GDP growth also. And in such ‘shaky conditions’ such numbers were bound to have an effect on our markets.

There will come a time when all bad news will be discounted for. More bad news will not affect the markets any more and the markets will be driven by the cheap valuations of the stocks rather than by bad news. That will be the new beginning. But when will that time come? It could be soon (near 4600) or may take longer (near 4100) or even longer (near 3800/3500???). Only the market decides that. We do not. The markets are supreme. We are not. We just follow the markets. We sell and make money in bear markets and buy and make money in bull markets. Follow the market, respect the market and it will behave like your best friend. Go against it and you are, probably, not going to find a worse enemy.

I was reading an article in the newspaper a couple of days back and it said that most stocks are available at the same prices as the prices when the Sensex was at 12000. The fundamental situation of India, or ‘The India Story’ as it is usually called, is still intact, but may have worsened a wee bit. And if the prices at 12000 warranted a ‘strong buy’, the same stocks at the same levels today should be considered a ‘good buy’.

While, it is not advisable to buy in situations when the downside target is not known, yet there is one stock which caught my eye and I would like to discuss it with you.

Shown above is the weekly chart of Siemens and we can see that it has been respecting a trendline in force since Oct 2005. After a steep rise last year, it is now 'on its knees' to 'kiss' the trendline. It should be assumed that it will once again respect the trendline and turn back. Downside risk seems to be minimal. However, the overall market conditions should not be ignored. Chances are that if the Nifty goes below 4650, this also could fall further (and that could be just the beginning of a major fall). So, a strict stop loss of 600 should be maintained. With this stop loss, it seems to be an excellent investment buy right now.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

Relief Rally or Real?

A new feature has been introduced with effect from 3 March 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. I agree, the audio is not upto the mark, but it does a pretty good job. Please bear with it.

The Nifty continued to rise today after a weak opening and is well on its way to the resistance of 4940-4950 that we talked about yesterday. While the resistance on the 30 minutes chart comes at 4950 but on the daily charts, it will come around 5100. A move above 4950 will be significant on the 30 minutes chart and we should expect it to reach 5100.

But the important point is that will 4950 be broken? Well, we cannot go against the market and we will follow it whatever it does. We can just change our own strategies to adjust to the movements of the market. Now, since the short term trend is up, we can take long positions and will be ready to close them at 5100, but at 4950 levels we have to be extra careful and we should be ready to exit if the market shows some weakness.

There are some good charts visible today, which have been discussed below.

Alstom Projects (APIL) has made a perfect double bottom pattern or a ‘W’ pattern and has now crossed the neckline at 680. With a stop loss at 660, one can consider buying at 680 for a target near 730.

Balrampur Chini has shown some good recovery after hitting our earlier stop loss at 80 and is now very close to its resistance line. The positive divergence between the price and the MACD (MACD crossing its resistance line whereas price still below it) is a good indication and suggests that this resistance line at 97 may be broken. One could consider buying it above 98 with a stop loss below 90 for a target of 115.

Gail India jumped up by about Rs.25/- today and may still look good in case it crosses 430, since then it would have crossed its resistance line at 429. Buying above 430 with a stop loss at 410 may be a good option because the target above 430 seems to be close to 475.

Again, a pattern, very similar to Gail has been formed by Jindal Steel. Though, the volumes are still low and do not show any breakout volumes and that is the only concern. Maybe, we are drawing the line too low. But, any way the line is drawn, a breakout is certain if it were to cross 2200. One may consider buying above 2200 with a stop loss of 2070 and hold for a target of 2430. Just be careful around 2370 because there is a fair bit of resistance there.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the rise today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

Short Term Target 4950 on Nifty

A new feature has been introduced with effect from 3 March 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. I agree, the audio is not upto the mark, but it does a pretty good job. Please bear with it.

The Nifty opened on a weak note today and continued its downward journey to go below our strong support at 4670 but then (thankfully) recovered to close near 4790. There was a pivot high near 4800 which the Nifty crossed today but then closed below it. A move above 4813 should now push the Nifty in a short-term uptrend. A move above this level will have a target near 4950 in the short term. It makes sense to buy calls, with 4900 or 5000 as the strike price, for the time being and cover after Nifty reaches 4950.

Seen here is the 30 minute chart of the Nifty along with its Relative Strength Index (RSI). On this chart, there are a few positive indications, the most important being the break of a downward sloping trendline. Among other positive indications are the positive divergences between the price and the RSI. As explained in previous newsletters, a positive or a bullish divergence occurs when the price makes lower lows/lower highs and the RSI makes higher lows/higher highs. In this chart, there are two such divergences visible, as marked by the dotted lines and the arrows. But these divergences give a confirmation of a trend reversal only when the trendline is broken and that has happened today. So, we should easily be looking at a target of 4950.

In the short term, pharma stocks, cement stocks, realty and infrastructure stocks are looking good and day traders can look for opportunities to trade in these stocks. As and when opportunities in the medium term (10-30 days) come about, we shall discuss them in the newsletters here.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the volarility today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

Support Here or Are We Looking at 4100?

A new feature has been introduced with effect from 3 March 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. I agree, the audio is not upto the mark, but it does a pretty good job. Please bear with it.

The Nifty, on Friday, broke down below the rectangle within which it has been moving since the past several days (between 4800-5500). On Friday, it broke through the rectangle, went all the way down below 4700 and then recovered to end the day at 4771. This recovery, albeit small, may be like a light at the end of the tunnel. Under normal circumstances, a drop below 4800 would have led to massive selling and a buying would not have come so soon. The fact that it has means that there are buyers who are willing to pick up stocks at this level and this may push the markets up. But the crucial day to watch is Monday. Another close below 4800 may indicate further weakness and a confirmation that this rectangle, indeed, has been broken. The target for this breakdown may well be 4100.

The recovery may have happened because the prices met the blue trendline near 4670. This is the trendline which, though not visible on the chart, has been drawn from the lows of the famous May/June 2006 decline. This line indicates the long term trend of the Nifty. Prices above this line indicate bullishness and below this line indicate bearishness. An actual confirmation of a long term downtrend would come if the Nifty were to go below 4000. Prices breaking this trendline may be only a warning of the trend ahead and nothing more. A little bit of support was bound to come at this level.

Now, we are met with two scenarios. One is that the daily charts are suggesting that a two month old rectangle has been broken and that should push the prices down to 4100. The other scenario is that a trendline which is 21 months old is there at 4670 and that prices should not go below that. These are both contradictory views. But, for the time being we would assume that the longer term pattern will hold as compared to the shorter term pattern. This means that there is a support at 4670 and that may be the low for this downmove. Some analysts differ in their views. They are drawing the trendline a little lower and according to them this support should not come before 4600. But let us wait and see as to what the market considers as a support.

Looking into the future, if we assume scenario number 2 to be correct then we should soon witness a bounce back. If this bounce back does not come and prices go down further then we would look at 4100 as the next target. There may be a minor support near 4448, which is the low of the black Tuesday (22 Jan 2008). Friday’s close was the fourth consecutive close below the 200 day moving average. While that is still conveying weakness, yet this trendline at which we are getting support is 21 months old which roughly works out to about 450 trading days. So, again this line holds more significance than a 200 day moving average does. But a break below this line, or prices respecting this line, should tell us where we actually stand.

Since we remain in a continued downtrend, no stocks discussed for buying.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall in the markets, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

Markets Break Down Further

A new feature has been introduced with effect from yesterday, 3rd March 2008 . Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. I agree, the audio is not upto the mark, but it is not all that bad too. Please bear with it.

Today was the second consecutive close below the 200 day moving average for the Nifty. As suggested earlier, Nifty remains inside the range of 4800-5500. The bottom end of the range at 4800 was touched today and the Nifty recovered from there. We have to wait and see whether this support holds tomorrow. If it does not, we have the next support at 4600. But that is only a support. If this range of 4800-5500 is broken then the target for the downside would be 4100. Though, we will remain in a long term uptrend till 4000 is broken, yet the Nifty going below 4600 will be the second sign that the long term trend may be broken, the first being the break below the 200 day moving average.

Since we remain in a downtrend and there are no definite signs of recovery right now, we should refrain from taking any fresh long positions. That is why no stocks are being discussed today.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

Read the Full Post Here

Bloodbath On The Streets

The Nifty opened weak today on the back of global markets being down and could never recover from the early setback. It did find some support near our ‘double support’ at 5055 mentioned yesterday but that did not last long. The matters became worse for our markets when both Sensex and Nifty went into a tailspin in the last hour of the day, thus breaking through not only our smaller range shown yesterday, but also through its 200 day moving average. The Nifty finally ended the day well below the 200 day moving average.

The breaking of the 200 day moving average, as mentioned in the earlier newsletters, is not a good sign. As seen from the daily chart of the Nifty, it did close below the 200 day moving average for three successive days before it went back above it. This time also, we would wait for some signals from it for 5 days to see whether it continues to trade below the 200 day moving average or goes back up. Well, for now, we are back in the larger range between 4800 and 5500 and would expect some support near 4800. We were already in an intermediate term downtrend and now we are in a short term downtrend too. Another negative seen on the charts today is that the Relative Strength Index (RSI), shown in the bottom half of the chart, has also broken through its upward sloping trendline.

Our stocks mentioned in the newsletter for yesterday, namely Cipla and Maruti showed good strength today. But, with the markets going into a tailspin, even Maruti came off its highs, yet Cipla is still holding on. Ranbaxy, mentioned in the newsletter for 27 February is going strong.

Till the time the markets stabilize at some level, it does not make sense to build any long positions. So, no new stocks recommended today. As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!! Read the Full Post Here

What to Expect from the Markets?

Shown above is the tick by tick chart of the Nifty yesterday. The FM’s speech started at 11:00 AM. As the speech continued to flow out of Mr. Chidambaram’s briefcase, the market kept reacting to the contents of the speech. The major falls during the speech came when the FM announced complete/partial waivers of loans to marginal/small farmers. A slight increase came about when the reduction in excise and customs duties were announced. The biggest fall of the day came when there was no reduction in the rates of the dividend distribution tax and no cut in the surcharge of to the corporate tax rates. After the budget speech, as expected, the market came down because there was nothing very enthusiastic/positive about the budget. A relief rally did come when there was analysis on the budget and when it was clarified that the government would pay the banks for the waiver in loans and would not let it be a complete loss for the banks.

Now, looking at the daily chart of the Nifty, we find that it is still locked up in a range between 4800 and 5550, and for the past 2-3 weeks in a much smaller range between 5055-5370. Incidentally, the 200 day moving average is also now at 5055 giving a double support to the Nifty. A clear trend of the Nifty would be visible only when it is able to break out of these two ranges.

Looking forward in the future, let us try and analyse what will happen to the markets in the time to come. We have already gone through a very steep downfall and the valuations are at a more comfortable level than they were in the beginning of the year. Our last week’s newsletter had mentioned that we are not as badly hit by a US recession as the rest of the world is. Of course, in a bull market or, for that matter, in a bear market there are excesses and that valuations become very expensive or very cheap before the market changes its trend. But looking at the rest of the world and other investment avenues, we have to predict where the money will flow. Our FM, Mr. Chidambaram, after the budget, mentioned that, though there was a decline in the growth rate of the GDP from 9.2% to 8.7%, yet most finance ministers in the world would be very happy to exchange positions with Mr. Chidambaram if that gives them a growth rate of 8.7%. Considering the demographics of our country, the situation in the rest of the world, the situation in the property markets in the world and the prevalent interest rates, it seems pretty obvious that if there is a good opportunity to invest anywhere in the world, it is in India.

Now, with budget out of the way, a big uncertainty is over. Markets don’t like uncertainty. So, with the uncertainty gone, it is only logical that the markets will start looking for a positive (or negative) trigger in the future. The positive trigger could be the coming earnings season which starts with the new financial year. Good forecasted earnings could just be the trigger that the markets are waiting for. A negative trigger could be the situation in the rest of the world right now. Or, some people are even talking of early elections. We can just wait and see which direction the markets want to take.

While the American markets were badly down on Friday, yet we can’t follow them on a daily basis. We have an economy of our own, more independent of America than it is dependent, valuations of our own, and it will not be too long before we start following our own valuations and economy, than to sulk at the other world markets and bring the same pessimism to India. Can’t we also say that the Americans are following us? Their markets may have gone down because our markets went down. Maybe they were worried that, with the strong growth potential that we are exhibiting, we might reduce our imports from America. Could that be a reason for the downfall of the American markets soon after our budget? Well, it’s just another angle from which things could be looked at.

Lets look at some stocks showing good potential right now.

This is the daily chart of Cipla. As seen from the chart, it has broken through its resistance line with a jump in volumes. This could be bullish for the stock in the short term. The previous major pivot low for Cipla on this chart is at 178, which should be a stop loss for the trade. On the weekly charts Cipla has a reasonable bit of resistance at 230-235 levels, which appears to be the target for this trade. The current market price is near 207. Does it make sense to enter into a trade which has an upside potential of Rs.23/- and a downside potential of about Rs.30/-. No, to me it does not. More risk averse traders could keep a stop loss near 198.

On the daily chart of Maruti Udyog, we find that the price is very close to its resistance lines. The stock has many positives – such as, with the last candle there was a significant price increase, the RSI, which happens to be a leading indicator (an indicator which gives signals earlier than the price does), has already broken through its downward sloping trendline and that the excise duty on small and hybrid cars has been decreased in the budget, which is good for the automobile sector. A movement above 880 should be used to buy the stock for a target near 1060 with a stop loss of 750, for the time being.

In the newsletter for 22nd Feb 2008, we had recommended Sasken Communication Technologies. Sasken has not moved up since then and still remains a good buying opportunity. Another stock similar to that is Tech Mahindra. Looking at the daily chart of Tech Mahindra, we find that, like Sasken, the volumes have been very low whenever the price has declined substantially. And now when the price is showing almost no movement (very narrow ranges) for the last 2-3 weeks, the volumes have jumped up significantly. This too may be a good buying opportunity with a stop below 650.

Happy investing!!!

Read the Full Post Here