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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More Downside Expected

Some new pages have been added into this site yesterday, which give good information and news about the Indian and the World markets. Please click on the tabs on the top to go to the other pages. For now, one would have to refresh the page at short intervals so that the most recent data is available in front of you but we are trying to incorporate a feature of automatic updation, which may take a couple of days. I need help of some tech savvy people who can help me to incorporate this feature. Those willing to help may please contact me.

Looking at the 30 minute chart of Nifty today, we find that we are in a short term downtrend now. We had another lower high and a lower low, as well. And in the process the Nifty broke through its short term trendline, had a small pullback and found resistance at the same trendline and turned down again. In the short term we have a small support near 5070 but as of now, there are no indications that it will hold. We have some resistance near 5300. As already mentioned, we are in an intermediate downtrend and will remain in one for some more time, or at least till the time 5500 is breached on the upperside. This level may change with time. Below 5070, we may be looking at a target of 4900.

It was the day of the Futures and Options expiry today. Tomorrow, and maybe Monday, there will be some build up of positions in the new month, which may be a cause for some volatility. After that the volatility may decrease and then only can we get a clearer picture of the direction of the Nifty. For short term traders, one should take only short positions and some of them have been identified here.

Air Deccan has a little support near 168. If this support breaks, it may come down to 140. Sell near 167 (stay away in the first 15 minutes of the morning) with a stop loss of 185 for a target of 140-142.

Allahabad Bank seems to have made a small head and shoulders pattern, which is bearish for this banking stock. Notice the sudden increase in volumes in the last half an hour when the stock broke through the neckline. Look to sell below 107 with a stop loss of 118 for a target of 96.

Bata India has also made a bearish pattern with a breakdown below the support at 167 with a sudden increase in volumes on breakout. This shoe company looks as a good selling opportunity below 160 with a stop loss at 180 for a target of 135.

IDBI is another shorting candidate after it completed its bearish head and shoulders pattern. With a stop loss above 118, it seems a good sell below 110 for a target of 96.

MTNL has also made a bearish pattern with a breakdown below the neckline at 119 with a sudden increase in volumes in the last half hour. This telephone company is a good shorting opportunity below 118 with a stop loss at 126 for a target of 103.

Network 18 also seems to have made a head and shoulders pattern with the head and the shoulders marked in the chart. With a stop loss of 350, it seems worth selling below 320 for a target of 285.

Under normal circumstances, whenever the price increases, the volumes also should increase, as has been happening in this 30 minutes chart of Reliance Natural Resources Limited (RNRL). This has been marked by the blue lines in the chart. But notice the price and volume pattern in this last increase and decrease (marked by the thick purple lines) where volumes fell when the price was increasing and volumes rose when the price was falling. This is a bearish sign and RNRL has also failed to reach its upper resistance of 150. One can profit from selling it below 130 with a stop loss of 143 for a target of 110.

Happy investing!!!

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