Above 5000, Expect a Target of 5500

Before I start with anything else, I must thank all my readers for their continued support. I have now posted 100 posts on this blogspot. It is all because of your continued support and readership that this blog is still a success. I hope that my source of inspiration – my readers – continue to extend their support to me.

Last week was a good week. The markets were closed on Monday on account of Ram Navmi and they were closed again on Friday because of Mahavir Jayanti. So, we were working only on Tuesday, Wednesday and Thursday. I, somehow, liked this three day week. I hope there are many more to come. And now on Sunday evening, Monday blues are already catching up with me.

In terms of market movement too, it turned out to be a good week. The Nifty ended all three days in the green, thus ending the week with a net gain of 180.60 points. Maybe the market too likes three day weeks. We just have to wait and see how Monday goes. If it is a down day then we’ll know that ‘Monday Blues’ don’t affect only the humans.

On account of news, it was a mixed week. The inflation figures that were declared on Thursday this week instead of Friday showed that there was a slight drop. It dropped to 7.14% as compared to the 7.41% the week before that. The RBI Governor decided to increase the CRR (Cash Reserve Ratio) by 50 basis points in two steps to 8%, which is expected to suck out approximately Rs.18500 crores of liquidity. It was surprising that the decision was taken in spite of the marginal drop in inflation but, more than that, surprising was that the decision could not wait upto the credit policy announcement on 29th April. This may suggest some harsher decisions to be announced on April 29th.

While a CRR hike of 50 basis points was expected, no change in the repo rates is expected at the moment. Even though the hike was expected to some extent, the market may still react negatively. There is a view in the market that even though a repo rate hike is not expected at the moment, the CRR hike itself will have an automatic upward pressure on the interest rates. There is also a view that a CRR hike wasn’t necessary and is not likely to contain inflation to a great extent. A major part of the current increase in inflation can be attributed to the increase in the prices of metals, the prices of which are not governed by or within India and the only way to address that issue is to have restrictions in place so that the supply is increased. That explains the reason why steel exports were banned last week.

Let’s get to the technical analysis part of the newsletter. Seen above is the daily chart of Nifty. We can clearly see that at this level, the Nifty is not only finding resistance at the top of its range but also from the downtrending line which has been in place for the last 3 months. This is likely to be a strong resistance. The CRR hike has come about at an inopportune time. This will add to the pressure that the Nifty is facing at 5000 levels. Maybe the time to cross these levels has not yet come. Maybe we’ll have to wait some more.

However, all is not lost yet. Even at the top of the range the Relative Strength Index (RSI) is nowhere close to the overbought levels (above 70), which suggests that there is still some scope left for the prices to go up. Secondly, there is a positive divergence between the price and the RSI visible on the charts. Positive divergence means that while the price is making lower highs, the RSI is continuing to make higher highs. And another positive at this time seems that the RSI has broken through its upward sloping trendline. And not to forget the influence of the global markets which all looked happy and strong on Friday (except China). Maybe, after all, this may be the time to go up. Wait and watch. Above 5000, the Nifty is looking at a target of 5500.

Axis Bank has broken through the downward sloping trendline with a big spurt in volumes. One may consider buying near 800 with a stop loss of 740 for a target between 1000 and 1020.

HDFC Bank has made a pattern of fan lines. In fan lines, 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. Notice the spurt in volumes on breakout of the third trendline, which was absent during the previous two breakouts. One may consider buying between 1360 and 1380 with a stop loss of 1270 for a target near 1650.

ITC has a history of finding resistance between 210 and 215. Notice the presence of the two doji candles (having the open and the close at almost the same levels) which signify that this maybe a top to remain for the next few days at least. Also, notice the absence of strength in the RSI because of which it is not able to decisively go through 60. This may be a good time to exit ITC.

Reliance Petro had been stuck inside a narrow range for over 3 months now and has now come out of that range on the upside. Because of the negative news of the CRR hike, a dip to 180 is possible. It might make sense to pick up this stock near 180 with a stop loss of 165 and a target of somewhere between 215 and 220.

Wipro, on its daily charts, seems to have made a bullish head and shoulders pattern. A move above 465 should confirm this pattern. While the stop loss is a little deep at 400, it could be bought above 465 for a target close to 570.

Happy investing!!!

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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.

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