Markets Recover from Expected Support Levels

The markets started on a weak note today and had lost about 60 points on the Nifty within the first half an hour and then started making a slow recovery from 4920. It took almost two hours for the market to recover all its losses for the day and just when it managed to reach yesterday’s prices at 4983, the industrial production data was announced. According to the data India's industrial production growth sunk to 3 per cent in March 2008 from 14.8 per cent a year ago and Index of Industrial Production grew at 8.1 per cent in FY 2007-08, down from 11.6 per cent in 2006-07. It took all of ten minutes for the markets to lose everything that it had gained in the last two hours, and even more. This time it made a low of 4915 and started its recovery from there.

This time around support was found at 4915, between our support levels of 4910-4930. And this time the buying seen seemed genuine because the Nifty recovered 97 points from the lows of the day and closed almost 30 points in the green. What triggered the buying is unknown. Maybe it was the technical support (between 4910 and 4930), maybe it was value buying (seems unlikely), maybe it was bottom fishing or bargain hunting (again unlikely because one doesn’t bottom fish when the sentiment is weak), but it definitely wasn’t the sentiment that had changed. A few days ago, in this column, I had mentioned that “technical analysis does help, but sentiment holds the key”. Is it time to change the phrase to – “sentiment doesn’t matter, only technical analysis helps”?

The Nifty is currently standing at resistance at 5020 as shown by the downtrending line. If it were to remain/go above 5020 after 10:30AM then its next target would be close to 5150.

On the daily chart of DLF, we can see that it has made a series of three doji candles (candles where opening price and closing price are the same or very close to each other) and suggests that the short term down trend may be over in this stock and it should see a reversal from these levels. Another positive in this chart is that the RSI is still above 40 and if DLF reverses from here then the RSI will also reverse and a reversal from 40 for the RSI is a good sign. The only negative that can be seen is that the RSI reversed from 60 when the last high was made and that means that it is still not in an uptrend. So, this time we should be careful when the RSI reaches 60 and should maintain a long position in the stock if the RSI were to cross 60. For now, it seems to be a good buy above today’s high of 640 with a stop loss near 607 for a target between 720 and 750 (and more if the RSI were to cross 60). Do not buy if the price doesn’t cross 640.

HDFC Ltd. rose from 2300 to 2900 levels, a move of over 25%, in just a matter of 10 days and then went through a brief consolidation, which has already lasted 8 days. A move above 2750 should confirm that the consolidation is over and it can give a move of another Rs.450/- in a matter of two weeks. If you can see the three trendlines on the chart, you can notice that it looks like an ‘F’ or a Flag complete with the staff. Look to buy above 2750 with a stop loss of 2600 for a target near 3200.

IDBI, after a sudden downfall, went into a phase of consolidation for over 3 months and finally broke through the trendline, only to see a pullback back to the trendline. It has support at the trendline at 98 and today’s doji suggests that the support may have been found. Look to buy above today’s high of 102 with a stop below 95 for a target of 130.

Happy Investing!!!

Read the Full Post Here

Is the Consolidation Over?

There was a comment posted on the site yesterday that the Nifty is more dependent on the Dow these days rather than the technicals. I fully agree with the point and probably it would make more sense tracking the Dow rather than all these technicals. But I feel that this is a temporary phenomenon. After all, our markets and our economy has its own fundamental value and what happens to the Dow or in the US will not have any bearing on our markets or even if it does, it will be short-lived. Indian markets do take a cue from the US markets and other Asian markets and open in a similar manner but ultimately during the day their own fundamentals (and technicals) drive the market. This is why I, generally, suggest that all signals mentioned herein should be taken only after the first 15-20 minutes are over so that the initial euphoria/panic of other markets settles down.

The Nifty remained in a very narrow range today. A movement of just 87 points in a day is nothing for the Nifty, especially when you compare it with the average range of 240 points for the last 10 days. A narrow range suggests indecision, as does a doji. A doji is when the closing price and the opening price is exactly the same or almost the same. A typical doji will have a candle which has an upper shadow and a lower shadow but no (or a very small) body. A narrow range day will have a small body but also small upper and lower shadows. These periods of indecision come generally at the market tops or market bottoms. The blue arrows on this daily chart of Nifty shows the dojis and narrow ranges and one can see that they have, generally, been formed near the tops or near the bottoms.

While the short term trend of the Nifty is up, the intermediate term trend still remains down. The pattern shown in this chart is a classic example of a rising wedge (though, it is more of a rising rectangle than a wedge). One could also call it an inverted flag. Such patterns are bearish in nature and suggest that the market could continue the previous trend before the pattern started forming. While this would be confirmed only when the Nifty comes below 5200, but a narrow range today near the top of the range suggests that we may see a down day soon. These are the early indications that we get from charts and they could always go wrong. A move above 5590 will prove this pattern wrong. We’ll have to wait and see what the Nifty decides to do.

DLF is touching its resistance near 900. While there is nothing to tell us that it might go through its resistance but the very fact that it has tested this resistance 9 times in the last month and the fact that resistances do get broken sometimes, it may be time for it to go through it. On breaking out, there is evidence of it having a target of 1120 but we should be happy with a more conservative target of 1000 in this range bound market. Consider buying above 900 with a stop loss of 858 for a target of 1000. Avoid doing anything in the first 15-20 minutes of market opening.

Financial Technologies has been consolidating in a range for some time now. Again, like DLF, there is nothing to suggest that this consolidation phase may be over but when the stock is near its support or resistance, we have to be prepared that if the stock does break out then what? Seeing the stock chart we see that it has some resistance near 2282. We should prepare ourselves to go long if the price were to go above this level. So, what do we do if it does not go above 2282? We wait till it does go through or we don’t take the trade till it remains below 2282. It has been making higher highs and higher lows and seems to be in a consolidation cum uptrend or an uptrend within a consolidation. So, with a stop loss of 2200, we go long if it crosses 2300 and we may well get a target of 2600. Avoid touching in the first 15-20 minutes.

Jindal Steel also has a chart similar to Financial Technologies. It has been showing a pattern of higher highs and higher lows within this long consolidation pattern and now seems to have broken out of it, as looks evident from the increase in volumes on breakout. It can be bought above 2630 with a stop of 2300 for a target of 3100. But what does one do if the Nifty continues with the consolidation or breaks down? What happens to all these stocks? Well, they may still go up even if the Nifty remains down. This is why individual stop losses for all these stocks are taken into consideration.

Bhagwan jab deta hai, chhapad phaad kar deta hai. That is true for chart patterns too. We again have a similar pattern in this 30 minutes chart of Neyveli Lignites with the volumes also increasing considerably on breakout. If one buys above 171 with a stop loss at 150, I don’t think a target of 210 will be too far off.

It is all becoming a little monotonous by now. RNRL again has the same pattern so wont go into the details of explaining the pattern but just notice the increase in volumes on breakout. Buy above 155 with a stop loss below 142 and a target of between 200-210 should be achievable.

Happy investing!!!

Read the Full Post Here