Webinar on MACD

This is the third of the series of my webinars. The first webinar was about moving averages and trendlines, the second was about Fibonacci numbers and Fibonacci ratios and this one is about the MACD. To view the old webinars, just go below this post and under the section "Other Posts That May Interest You", click on the posts given under the subsection webinars. In case you have any questions about the topic after you see the webinar, feel free to post your questions under the comments section below and I'll make it a point to come back to you as soon as possible.



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Happy Investing!!!

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Candlesticks Piercing Pattern Made in Nifty Today

The Nifty today opened flat and remained so for the next 2 hours before it started slipping. It went on to make a low of 4536.25 which was very close to our support of 4530 as mentioned here. It was from here that the recovery started and what a recovery it was! A climb of more than 150 points from the day’s lows. It gave us a nice big blue candle, which was quite a relief after losing 350 points in 3 days.

Seen above is the daily chart of the Nifty. Looking at the last two candles, according to candlestick charting, we got a very good piercing pattern. A small image is also given below to help you understand what a piercing pattern is.

The criteria to recognise a piercing pattern is the following:

1. The body of the first candle is black (shaded); the body of the second candle is white (unshaded).
2. The downtrend has been evident for a good period. A long black candle occurs at the end of the trend.
3. The second day opens lower than the trading of the prior day.
4. The white candle closes more than halfway up the black candle.

If you notice these criteria, you would see that today’s pattern on the chart fits exactly with this. This may probably mean that this is the end of the downtrend, at least for sometime. For the time being, let us forget the head and shoulders pattern that we saw yesterday and hope for the best. More candlestick patterns can be read on this page.

I got a few mails today in response to the post I wrote yesterday. A lot of my readers were “disheartened” by my analysis of the markets and the ‘shuddering’ thought of the Nifty possibly going to 2600. One of them even asked me to ‘give some rays of hope’. I forgot that, like a doctor keeps giving hope and comfort to his patients and his/her family members even if the survival chances are bleak, I too, with so many blog readers, need to ‘give rays of hope’ when the markets are looking bad.

Yes, I understand that I may have painted a very grim picture yesterday but I thought my readers had to be aware of what could be a possibility. It is to be understood that it is only a possibility and not a certainty. More risk averse investors should be getting out of the markets if we were to go below 4450. And how will they exit if I don’t tell them where to exit? I have to cater to all audiences and it is my duty to bring out all possible scenarios. I admit that I may have erred by not including the positives in yesterday’s post.

Well, all is not lost yet. We have support at 4530, which held today. The three year trendline (and not the eight year trendline that one of my readers got confused with) that the Nifty might break is a very long trendline and one odd going through the line is not considered as a breakdown, it needs to be consistently below the line for a week or so to get a confirmation of a breakdown. Secondly, the head and shoulders pattern shown yesterday was on the weekly charts and took a year and 4 months to form and the target could take as long to be achieved. Markets change drastically in such a long time and such large patterns are more likely to fail than short term patterns. And today’s piercing pattern boosts our morale a little. All may not be lost yet.

In my webinar on moving averages I had mentioned that when multiple moving averages converge together or come very close to each other it means that a big movement is about to come. This is a derivative of the age old Dow Theory. One of the tenets of the Dow Theory is that ‘lines indicate movement’. By ‘lines’ Charles Dow meant the prices moving in a very narrow range or within a small rectangle. This narrow range usually indicates that a movement is about to come. About moving averages when they converge together it means the prices have been moving very close to a particular price level for long (in the present scenario the 5000 level) because of which all moving averages are also very close to each other. This indicates a ‘lull before the storm’ or that a big movement is about to come. This movement could be either up or down. On the past several occasions it has happened that after such a scenario the prices went up but they could very well go down too. This theory only states that a big movement will/may come and does not necessarily state the direction of the movement. One of my readers mistook it to mean that it meant prices would go up. In the present scenario all moving averages are pretty close to each other and they indicate that a big movement is likely anytime soon. This could be on the downside if we go below 4450 or on the upside if we cross 5300. Let us all hope for the best and let the markets decide which way they want to go.

In my post dated 27th May 2008, I had advised buying Nifty 4800, 4700 or 4600 puts or buying a 5000 call and selling 4600 or 4500 call. Let us see with the help of this table how much profit we would have made if we had followed any of those strategies on 28th May and covered the positions today with just one lot of Nifty (50 Nifties).

Such good returns in a matter of only 8 days and that too when the market is going down and with a maximum investment of only Rs.16000 odd. And all these profits are on just one lot of Nifty. One with Rs.50000/- to invest could have bought 4 to 5 lots of Nifty options and could have easily ended up with more than a lakh in just eight days. Keep watching this space for more such strategies whenever they come. Subscribe to my posts now so that you don’t miss any such profitable strategies.

Happy Investing!!!

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Webinar on Fibonacci Series

After the terrific response that I got to my first webinar, I have produced another one and this one is on Fibonacci retracements or the Fibonacci Series. Fibonacci series is a series of numbers obtained by adding the previous two numbers in the series. Surprisingly, Fibonacci numbers or ratios are used everywhere, intentionally, unintentionally or just naturally. It is there in the pattern in which plants grow, the numbers in which rabbits or bees reproduce, our human body, architecture, music, stock markets, astronomy, just about anywhere. You can see about it in this short video before you view my webinar.

Please leave your comments on the webinar and whether you would like more webinars to be put up in the future or are text newsletters just fine?

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Further Slide in Markets

We are fine as long as a trend is in place. As soon as the trend changes, we start looking for supports/resistances. Usually, we will be able to find multiple supports and resistances below or above the breakout points. But the markets have a mind of their own. They will choose one of those multiple levels as a support or a resistance and we don’t know which one. We can only guess where there is a maximum probability of finding support.

One of those high probability support levels was available yesterday near 5070 but the markets crossed that without a second thought. The markets became weaker through the day, probably, because the inflation data did not show any improvement. This is the 60 minutes chart of the Nifty and we find from the two trendlines visible here, that support is between 4910 and 4930. According to the pattern breakout, the target for the downmove is approximately 4920. Today again we have multiple supports available between 4910 and 4930 and there is a high probability of the markets finding support. Now, whether the Nifty does find support near these levels is up to the market to decide. We can only take action based on what the markets are telling us. As of now, they are telling us that we are in a short term downtrend and short term long positions should be avoided for the time being. A move below 4890 will give us a signal to close intermediate long positions too. Long term long positions should be maintained till 4500 is crossed on the downside.

Continuing the webinar on Fibonacci retracements posted earlier in the day, we can apply the Fibonacci retracement levels to this chart and see where support is likely. I suggest, you right click on the chart to open it in a new window so that you get a clearer picture and can read and see side by side by toggling between the two windows. Now, I have drawn two retracement levels here, one in green for the low formed on 18th March to the high formed on 2nd May (let us name it as ‘A’). And the second one is in black for the low formed on 7th Apr to the same high on 2nd May (let us name it as ‘B’). As can be seen from the chart, we are currently very close to the 38.2% Fibonacci retracement ‘A’ at 4980. Very close to that is the 50% retracement ‘B’ at 4965. The markets may find support at these levels or may decide to find support where there is a cluster of Fibonacci ratios, for example, at 4890 where the 50% retracement ‘A’ and 61.8% retracement ‘B’ are together. Or, it may decide to go further down where the ‘A’ 61.8% and ‘B’ 76.4% retracements are at the same levele at 4790. Where the markets will find support is for the market to decide.

We shall wait on the sidelines without holding any long positions and buy when the market gives us a signal that support has been found. The long trades that we have entered into in the last few days are all intermediate term positions and should not be closed unless 4890 on the Nifty is broken, unless the stop loss is hit first. If the stop loss has not been hit and the Nifty does go below 4890 then one has to take a call whether to sell there or still wait for the stop loss to be hit. I would, personally, prefer to wait for the stop loss to be hit.

Let us wait and watch where the markets find support. Happy Investing!!!

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Markets Move in Expected Direction

As expected, the Nifty did come below the upward sloping trendline and is now ready for a (hopefully, small) downmove. As discussed yesterday, the Relative Strength Index (RSI) of the Nifty has also now confirmed the bearish head and shoulders pattern. We can hope for the Nifty to cool down for sometime but upto what level that is a little difficult to say.

Hopefully, we can come to know about the possible levels with the help of the chart below, which is the 60 minutes chart of the Nifty. If we see the chart we can see that this upmove started on 18th March 2008 from a level of 4468.55 and the high was made yesterday at 5298. If we apply the Fibonacci Retracements to it, we can see that the 23.6% retracement is at 5102.25 and the 38.2% retracement at 4981.15. At the moment we are not looking at a move below this level, though, I feel 5100 should be a good level to bounce back from. Of course, conditions may change, circumstances may change.

Note: I still remember about my promise about writing more on Fibonacci in one of the weekend posts. Let me finish with my series on the Mutual Funds first and then I’ll do it. Maybe I’ll do a webinar on it.

No stocks being discussed today. Let us wait for the market retracement to finish and see where support is found.

Okay, and just before I sign off for the day, a small quiz for you. Do you know why we keep using the terms ‘Bulls’ and ‘Bears’ in the stock market? I found the answer at Digital Inspiration, which says that “According to Motley Fool, a bear market earned its name because bears tend to swat at things with their paws in a downward motion (as in "the market's going down"). A bull market, on the other hand, got its name because bulls swing their horns upward when they strike (as in "the market's going up").”

More in the next newsletter.

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Webinar on Moving Averages and Trendlines

Below is embedded a video seminar (webinar) which talks about trends, trendlines and moving averages. In case you like this webinar, and want more to come in the future, please click on the comments form below and leave your remarks

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