Support Found, Double Bottom Possible

So, the global cues didn’t seem to matter today. Dow Jones was marginally down, Asia was mixed. Our markets bounced back from the technical support levels and kept going up through the day. Even in the last 30 minutes it just lost about 10 odd points. No big profit booking or selling on rallies seen.

I have got a very interesting 30 minutes chart of the Nifty today. As seen from the thick green lines, the Nifty seems to be making a double bottom pattern which is also known as a ‘W’ pattern with the neckline at 5065 as shown by the dashed green line. This means that this double bottom pattern will be confirmed if, and only if, Nifty were to go above 5065. If this were to happen then the next target on the Nifty will be 5180. But, that is not all that there is to it. There is another downward sloping trendline which might (and probably did today) provide resistance to Nifty. We will assume this resistance to have crossed if the Nifty were to go above 5030 tomorrow. Luckily, it is not very far from the current levels. Just about 20 points away. On the downside support is at the same levels, between 4910 and 4930.

Ranbaxy has been inching upwards within this 50-60 points wide channel since the last three months. An interesting observation that can be made from this chart is that the channel may be rising but the RSI has been making lower highs during the same period, thus showing a negative divergence between the price and the RSI. This is bearish for the stock. I may have mentioned this before but a divergence has the same relationship with the prices that dark clouds have with rain. Dark clouds do not necessarily mean it will rain similarly a divergence does not necessarily mean that the prices will move in the direction expected, provided there is no break in the trendline. But as soon as the trendline is broken the price starts moving in the expected direction. This means that in this case, there is a slight weakness in the stock but it is not a sell, definitely not a short sell, until 465 is broken on the downside. Another negative sign that can be seen in this chart is that this time around, the prices failed to reach the top of the channel. When the prices are moving in a channel, they are expected to touch alternately the top and then the bottom of the channel. A failure to reach either the top or the bottom is known as a return line failure.

This is the daily chart of Tata Steel. It seems to have gone through a double resistance line between 850 and 860. One is a downward sloping trendline almost 7 months long and the other an upward sloping a month longer. The breakout comes with a large blue candle and that makes it all the more simpler for us to identify whether the breakout is genuine or not. I would have been happier with heavier volumes but today’s volumes were just a little better than average. Buy with a stop below 830 for a target near 1050.

Happy Investing!!!

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Base Building 'On' in Most Stocks

The Nifty, on Friday, remained a little range bound in the first half of the day but after noon, once it was able to cross the day’s highs, it consistently went up. The Nifty now has reasonable resistance at 5350 levels, still about 60 points away from Nifty’s close.

On the way up the Nifty managed to break its resistance level (marked by the blue line) and signified that it was no longer in a downtrend. Not only that, the pattern formed on this 30-minutes chart before the breakout tells us that the target for the Nifty could now be 5750. But there is another very important thing visible here. And that is the presence of the two dojis (open and close near the same price) at the end of the chart (in the red circle). It has been explained in earlier newsletters that dojis represent uncertainty and that they are formed, generally, near short term market tops/market bottoms. If this were to be true, we could see the Nifty coming down tomorrow. Fortunately, support is not too far away and should find support near the blue line, i.e. between 5200-5210.

Balrampur Chini is currently in a base-building phase and once it breaks through the upper trendline, it should be a good time to buy. Unfortunately, in such kind of patterns, the risk reward ratio is 1:1, which means that the stop loss is as far as the target. But to get rewards, one has to take the risk. So, a buy above 93 with a stop loss of 75 should take us to a target near 112-113.

BHEL has broken through one trendline and is currently facing resistance from another one on its daily chart. But if this resistance is crossed too then it should go up to its next resistance line between 2600-2700. Buy above 2315 with a stop loss of 2050.

Sesa Goa is also making a base on its daily charts after a sharp decline and is now standing at its resistance. It has also broken a downtrending line on the RSI. This resistance line (on the price chart), which means above 3250 could give us a target of around 3700. A stop loss of 2800 seems reasonable at the moment. But the important thing is that will Sesa Goa break through its trendline tomorrow? Maybe, it could, but there are two negatives here which are pointing against it. One is the doji made on the chart on the Friday, which suggests that this could be a short term market top and the other is the reasonably low and declining volumes, which accompanied the price increase in the last 4 days.

Tata Steel is near its 5 month old resistance line on its daily chart and prices going above this trendline could be bullish for this steel stock. One could buy it above 830 with a stop loss at 700 for a target of somewhere close to 970.

Happy investing!!!

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