Many Blue Chips Showing Strength

Looking at the last 7 days chart of the Nifty on this daily chart, we find that there is one blue candle, one red candle, one blue, one red and so on. This, along with the narrow range trading, indicates confusion and indecisiveness in the market. The green line just below today’s candle is the 200-day moving average of the Nifty. A close below that would be dangerous. Fortunately, it recovered before it reached there and closed the day about 80 points in the green. While the Nifty is expected to remain in this broad range of 4800-5500, there is support at the 200 day MA at 5030 and resistance, near the previous pivot high formed last week, at 5368.

On the daily chart of Larsen & Toubro, the stock has made a higher low yesterday and is now near its resistance line. With a stop loss of 3385, it seems to be a good buy if it crosses 3520 and it looks good for a target near 4000. Notice the RSI also turning back upwards after touching 40.

Ranbaxy was recommended in the newsletter of 22nd Feb. Unfortunately, on that day because of weak markets it didn’t cross our recommended level of 425. Today again it has knocked against its resistance line. The levels, now too, remain the same. Buy above 425 for a target of 500. However, we have now modified the stop loss from 340 to 390.

Look at this daily chart of Reliance Communications. Two doji days (days having open and close at almost the same level) now with today’s doji with a long lower shadow should be a good bet. Also notice the positive divergence (price going down but RSI going up) between the price and the RSI. Also the RSI fails to breach the 40 level this time around. All these are positives for the stock. Look to buy above 600 with a stop loss of 550 for target prices of around 700 and then 800.

This is the daily chart of State Bank of India. The trendline seen on this chart has been drawn from the lows made in April 2007 at a level of 915. It has been 10 months now and the stock is still finding support near this line. Touching of the trendline today and a doji day with long lower shadows with RSI above 40 are positives for this public sector bank. One could buy it above today’s high of 2140 for a target near 2600. There may be some resistance near 2280 so be careful around those levels. Keep a stop loss of 2050 for this purpose.

We again have a chart with a trendline drawn from the lows formed in April 2007 (of course, that time it had a face value of Rs.10/- as compared to the Rs.2/- now). The price of Suzlon Energy today touched this trendline and is currently trading below its 200 day moving average at 319, with today being the 4th consecutive close below it. Stay away from it for the time being. All long positions should be closed on a close below 290.

Happy investing!!!

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Short Term Trend Now Up

Today was a good day. Out of the many stocks recommended yesterday, some of them opened with such a huge gap that it made no sense to buy them at such high levels. At least four stocks reached their respective targets (we had recommended small targets of 3% in most of them), and most of the remaining ended the day with a small profit without touching their targets, thus leaving our positions open. Jindal Steel recommended on Monday is already giving us a profit of about 12% from our entry price and has come within scraping distance of our target of 2450 (entry price was 2100) and accordingly, we have increased our stop loss to 2300.

Today is a good day to discuss how to change our trading approach when the market opens with a gap up or gap down. Well, investors shouldn’t bother with gap openings because when one is investing for long term, a few rupees here and there would not make too much of a difference to their returns. For day-traders and swing traders, it definitely will. So, it is these traders who have to modify their strategies. It is best not to change your approach after market opening because that leads us to panic. Rather, make it a rule so that gap openings don’t bother you. If one follows these 10 simple rules, it will save them a lot of tension and ‘high BP’. The rules are as follows:

1. Before the market opens, you should have pre-decided entry levels, stop losses and targets.
2. Never enter a trade in the first 30 minutes.
3. Enter a long position only if the price goes above the high of the previous 30 minutes. If it does not do that, just wait.
4. Similarly, enter a short position only if the price goes below the low of the previous 30 minutes. If it does not do that, just wait.
5. If you still haven’t entered the trade, again follow rule number 3 and 4.
6. If the stop loss or the target is hit before the entry, just forget about the trade. Do not enter at all.
7. If the difference between the target price and entry price is very low, and it seems that you are taking too much of a risk compared to the reward, do not take the trade.
8. ALWAYS exit at your target. DO NOT be greedy.
9. If at all you want to be greedy, at least close 50% of the position and be greedy on the remaining 50%. Modify the stop loss to your purchase price so that you don’t end up with a loss on the remaining 50%.
10. If you are already in a trade (carried forward trade) and the market opens below your stop loss for the day, immediately close the trade.

Now, lets discuss the Nifty. As seen from the daily chart of Nifty above, there was some hope. The Nifty, which had on three consecutive days closed below the 200 day moving average, today managed to cross it and with quite a margin. This move changes the short term trend to up but the intermediate trend still remains down. The intermediate trend will change to up when the Nifty crosses the brown line (previous high), which happens to be at 5545. Meanwhile, it should also not cross below the previous low of 4800 or its 200 day moving average at 4992. Meanwhile, the Nifty now lies very close to its next resistance at 5260, as shown by the blue line.

Aditya Birla Nuvo seems to have broken out of this downtrending channel on its 30 minutes chart. This may be bullish for the stock. Consider buying above 1800 with a stop loss at 1760 for a target of 1880.

Hindustan Constructions, on its 60 minutes chart has formed an unconfirmed inverted head and shoulders pattern. This pattern would only be confirmed it the price were to go above 175 with high volumes. A good test of volumes would be to compare it with the current volumes. The current volumes, on an average are about 2.5 lakh shares every hour. So, if the volumes are about 4 or 5 lakh shares in an hour’s time, and the price is above 175 then it would be a good time to buy the stock. The stop loss should be set at 150 and 250 should be a reasonable target for this pattern, once it is confirmed.

IDFC has broken through this straight trendline on its 30 minutes chart. This trendline has been tested 6 times in the past 20-25 days (marked by the blue arrows). Only on two occasions has it given a false signal when it was breached without any resistance. It would make sense to buy it above 200 with a stop loss of 193 for a target near its previous recent highs of 215.

Besides these Indiabulls, LIC Housing Finance (above 280), State Bank of India and Welspun Gujarat (above 450) also seem to be good buying opportunities. The charts for these have not been given.

Happy investing!!!

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