Small Downfall Still Expected

As expected, the Nifty did go down today. During the day the Nifty did try to go up but could not go above yesterday’s close. It did manage to reach there but turned down again to close near the lows of the day.

Today we have the 30 minutes chart of Nifty with us. In the last 3 days we have seen that the Nifty has remained within a very narrow range. It may be consolidating within the range. What will happen after the consolidation is over is anybody’s guess. It has support between 5000 and 5010 and resistance between 5070 and 5075. This gives us a total range of 75 points. Once the Nifty decides to move outside this range then it gives us a target of another 75 points in the direction of the breakout. Of course, these targets can easily be overshot too depending on the momentum.

Let us look at the pros and cons of this range. The pros first. The Nifty had gone up about 450 points in the current rally, on the daily charts, without any meaningful correction. A correction/consolidation is healthy for the market. We want the Nifty to consolidate and catch up its breath before it starts running again. We don’t want it to keep running, become breathless and then collapse. So in that regard this consolidation will be good for the market and the results will be known once the Nifty crosses 5080.

And the cons? The latest rally, which was today’s rally, failed to reach its earlier highs near 5070-5080 and that signifies that there is weakness in the markets at higher levels. Another interesting observation on the charts is that it has made a small bearish/inverted head and shoulders pattern within this range. This pattern, though, has not been confirmed yet. A break below 5000 will confirm this pattern. The target for this bearish head and shoulders pattern will be about 4940. At this point, there seem to be more negatives than positives in the short term.

There are a few charts which are giving buy signals and have been discussed below. But one’s own discretion is required because we are expecting the broader market to come down a little. Please note that some of these stocks may be available at a cheaper rate in a day or two but the buying signals remain valid till the stop loss level is hit.

Aditya Birla Nuvo is showing some signs of improvement, as can be seen from this daily chart. What looks positive for the stock is the support for the Relative Strength Index (RSI) near 40, as marked by the circle. A move above 1500, which may or may not come tomorrow, should be positive for this textiles stock. A stop loss of 1375 will be prudent while waiting for a target of close to 1700, where it will meet the resistance line.

Arvind Mills, on the daily charts, has broken through its resistance line accompanied by huge volumes. This is bullish for the stock. The RSI is close to 80 and it is generally advised to wait for a pullback before buying. But seeing the chart, we can see that Arvind Mills has closed near the highs of the day without showing any signs of a pullback. Under these circumstances, it can be bought at the current levels with a stop below 50 for a target of between 65 and 67.

Hindustan Constructions has been moving within a narrow range between 110 and 140 since the last month and a half. It is now near the top of the range and may break out of this range. If it does it gives us a target of close to 170. A stop loss below 125 may be safe. But this stock should be bought only if it were to go above 140. Ignore the movements in the first 30 minutes as they are subject to volatile movements more because of global cues than because of technical or fundamental reasons.

Another very interesting chart of Jindal Steel. As can be seen from the chart, the price has been making lower highs while the RSI has been making highs at almost the same level, if not higher. This is known as a bullish/positive divergence when the price is going down but the RSI is going up. Now it is close to its resistance near 2300 after a pattern which looks like a double bottom formation. Not only that the RSI which was finding resistance near the line has broken through it which gives an indication that maybe the price will follow. Buy only if it crosses above 2300 with a stop loss of 2100 for a target somewhere close to 2750.

Petronet LNG has been in a narrow range between 60 and 80 for a better part of this calendar year. It now seems to have broken out of the range, while the volumes, though increasing, remain significantly low. Not the kind of volumes one would expect to see with a breakout. So, one can take a risk using her own discretion to buy near current levels with a stop loss near 74 for a target of near 100.

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!!!

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A Technical Pullback May Be Possible

A new page on IPOs has been added today. There is still very limited content on it but we will keep adding more content on it to keep you up to date with the latest in IPOs. The Indian Markets and World Markets page has some reasonable good data. Go and check out the other pages by clicking on the links above. The Futures & Options Page and About Us page are still under construction. They should be ready in a week or two.

As this newsletter is being written, the European and American markets were trading in the green after the news came out that Warren Buffet’s company, Berkshire Hathaway Inc., has offered to take over the liabilities from bond insurers. At this moment, the Dow is up 213 points, Nasdaq up by 24 points and the FTSE up 202 points. All Indian ADRs except VSNL are in the green as of now.

Coming back to India, the Nifty closed 18 points in the red at 4838. Looking at the 30 minutes chart of the Nifty today, we find that it remained in a very narrow range throughout the day. Buying was seen at lower levels while higher levels encountered selling. We still remain in a short term and intermediate term downtrend. The short term trend will change to up when the Nifty crosses 4950. A pattern of higher highs would be formed if the Nifty were to cross 4983, a pivot high made yesterday. The next important level and a more prominent and significant pivot high is at 5168 (both these levels have been marked by the thin dotted lines on the chart). 4805 is a support level, being the most recent low. If this is broken, we are going to see further weakness.


Yesterday we had shown the daily chart of Nifty along with the MACD indicator. The details of the calculation and construction of this indicator are beyond the scope of this newsletter but as was explained yesterday, we get a buy signal when the green line goes above the red line and a sell when the green line goes below the red line. Today, we have taken the MACD on the 30 minutes chart. Not only that the buy and sell signals have been marked with arrows on the charts and we can see that they were pretty good signals. If one had taken all signals (buy and sell) on the Nifty based on the MACD from 17th Jan till today, one would have made a profit of approximately 1250 points on one unit of Nifty or Rs.62500 on one lot of Nifty (50 units). But that is not we are discussing here. This was just to give you an idea about how effective this indicator can be and this was in a market which has given many whipsaws (signals which resulted in a loss) especially between 24th Jan and 1st Feb. Another important, and the more relevant, thing to note is that the MACD has given a buy signal again today. With the stop loss (4805) only 30 points away now, this trade could easily be taken.

With the world markets remaining as they are, we may not have a negative effect from them tomorrow morning. The Nifty has been coming down since the last 6 trading sessions and it is definitely time for a technical pullback or a bounce now. Taking these factors into consideration, a buy at this level for small profits may not be a very bad idea. If at all, the markets do move against us, the stop loss is very close at hand so this may be a low risk buying opportunity.

Looking at small profits there are a few buying opportunities available. One such stock is Andhra Bank, which seems to have completed its downtrend as its downward sloping trendline has been broken. Narrow range bars in the end with high volumes may signal accumulation. Look to buy above 86.50 with a stop loss of 82.50 for a target near its next resistance near 92.

Similar chart in Alstom Projects (APIL). With a stop loss below 655, it may be bought above 700 for a target near 750.

Jindal Steel also may have completed its downtrend, though, it still hasn’t gone above its trendline. With a stop below 1900, look to buy above 2100 for a target near 2450-2500.

Happy investing!!!

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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!!!

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