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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Many Stocks Showing Strength

The IPO page had been added to our site yesterday. Today, the ‘About Us’ page has also been completed. Please have a look at the same by clicking on the links on top of the page. The Futures and Options page should be ready within a couple of weeks.

The Nifty opened on a high today, went up to yesterday’s pivot high of 4983, made quite a prominent pivot high at 4985 and turned down. Support was expected at 4805 but it came down to 4863 and turned from there to close at 4951. Now we have a pivot high at 4985 and a pivot low at 4822 (made yesterday). A decisive breakout out of one of these two levels should give a bigger move. We can safely say that if the Nifty were to go above 4985 and fails to come below 4863 then the short term trend will change to up. Today, in the last 30 minutes it seems to have broken through its downtrending line which was giving resistance near 4925.

Another positive thing noticed today was the Nifty has been trading in a broader range of 4800-5000 for almost 3 days now (30 bars) and has shown some signs of consolidation within these levels. The buy signal given by MACD yesterday (marked by the green arrow) is still intact and hopefully, we should have a bigger move tomorrow. If the price were to go above 5000, it should find resistance near its next trendline between 5150 and 5200. On the downside, if the Nifty were to go below 4800 then a level of 4600 is possible.

A lot of charts today are showing strength on the 30 minutes charts but are not giving any targets as such. Showing the charts of all such stocks is going to take a lot of time. So, without giving any charts and targets as such, I am mentioning some stocks which may be good buying opportunities. And since no clear targets are available (unless otherwise mentioned), it is suggested that one should keep small targets of 2-3% and cover their positions once the target is achieved. A stop loss for each has been given to protect huge losses.

• 3I Infotech – Buy above 117, stop loss 110
• ABB – Buy above 1310, stop loss 1250
• Adlabs Films – Buy above 810, stop loss 750
• Aftek - Buy above 50, stop loss 47
• Allahabad Bank - Buy above 108, stop loss 101
• Ambuja Cement - Buy above 117, stop loss 114
• Canara Bank – Buy above 300, stop loss 285
• Cummins - Buy above 330, stop loss 315
• DLF - Buy above 820, stop loss 790
• Gail - Buy above 405, stop loss 390
• HDFC - Buy above 2760, stop loss 2600, target may be near 3000
• HDFC Bank - Buy above 1480, stop loss 1440, target may be near 1580
• ICICI Bank - Buy above 1120, stop loss 1060
• India Infoline - Buy above 1110, stop loss 1040, target may be near 1220
• ITC - Buy above 200, stop loss 190, target near 213
• Nicolas Piramal - Buy above 320, stop loss 305, target near 340
• Reliance Energy - Buy above 1600, stop loss 1500
• Reliance Capital - Buy above 1850, stop loss 1750
• Tata Motors - Buy above 720, stop loss 708, target near 750

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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Still Very 'Gloomy'

The Nifty continues to make lower lows. It was expected to find support near 4900 but it broke through that too. The charts are looking more and more bearish everyday. It closed lower than the close on the ‘Black Tuesday’ last month. Not only that, it also closed below its 200 day moving average, which was giving it support at 4975. One should remember that the 200 day moving average is a very significant level to break. Seeing the chart it is clear that this moving average has been tested on 5 occasions in the last one year but the Nifty has never been able to close below it.

What is a moving average? Till now, I have been using trendlines on my charts in the newsletter and I’m sure all of you would be aware of trendlines and their significance and the supports and resistances provided by them. In simple words, trendlines are sort of an average of prices and it is expected that prices will find support/resistance there. Moving averages are basically moving trendlines and they are actually an average of the closing prices of the price of ‘x’ number of days. Most significant moving averages used by chartists are 5 day moving average (DMA), 10 DMA, 20 DMA, 50 DMA, 100 DMA and 200 DMA depending on the time period one is looking at. It is generally said that the index/stock is bullish above a trendline and bearish below it. Prices below the 200 day moving average are indicative of a bear market. It has been seen in the past that the prices have been able to close below the 200 day moving average but soon cross over again. I would, personally, give the Nifty some time to recover. If it were to stay below this moving average for the next five sessions, then I would have a very negative view on the market . Five consecutive closes below it will be bad for the markets.

At the bottom of the chart today, I have included a new indicator – MACD (Moving Average Convergence Divergence) instead of the RSI. The signal that we get from MACD is that we should buy when the green line crosses above the red line and sell when it comes below it. Even after coming to such extreme levels (it has never come down to such levels in the past one year), it has again given a sell signal. We are probably heading towards our target of 3800-3900. But before that 4530-4550 is a key level to watch. Support there can bring us back in the running for newer highs. For now, it is just wait and watch.

We still are in a long term bull market (if 4500 is not broken) and our strategy in bull markets should be to buy on dips. This is, without an iota of a doubt, a dip. Then why are we scared of buying now? Well, fundamentally, India is still on a high. Among all emerging markets, India is the best placed, demographically, to see a sustained rise in the economy. And if the economy is doing well, nobody can stop the markets from rising. But as suggested earlier, lower levels are possible and one should take the opportunity to buy now, but with a stop loss of 4500.

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'Boom, Doom and Gloom'

We have a new widget added on the world markets page today which gives the latest market prices of Indian ADRs listed on the American Markets. Click on the World Markets link to see. We are adding new content to our other pages every now and then. Please keep visiting them to see what's new. Very soon we are going to have a page on IPOs and on Futures and Options too.

Anyway, back to the markets. It’s all looking gloomy right now. The intermediate trend of the Nifty has been down for the last three weeks now. The short term trend had turned positive for a short period of time but that also has become negative now. The Nifty has now confirmed breakdown from two patterns. One is the channel breakdown, the one which is represented by the smaller circle or by the two uptrending

blue lines. This was a 450 point wide channel and it broke through the channel at a level of 5170-5180. Considering that the breakdown is also of the same magnitude it gives us a target of 4720-4730. The green lines shown here at 5035 and 4900 are just minor supports inbetween.

The second pattern that we are talking of is much larger and much more ‘horrifying’, to say the least. This pattern is the inverted flag pattern and is shown within the larger circle on the chart. In this sort of a pattern there is a clear trend in place (could be an uptrend or a

downtrend) and then prices consolidate within a range (which could be a straight or a rising or a falling rectangle or could be a rising or a falling wedge) and then the prices break out of the consolidation and continue the previous trend which was in place. The ‘horrifying’ thing is that such patterns are formed approximately half-way between trends. And if this indeed is half-way then the target for the end of the trend is, hold your breath, 3820.

We have been saying that we are in a long term bull market and that we should be buyers on every dip. The definition of a bull market is that we (rather, the chart) should be making a pattern of higher highs and higher lows. And the converse is true for bear markets. We have three trends which we usually talk about, namely the short term, intermediate and long term trends. Generally, we watch short term trends in the 30-minutes charts, the intermediate trend on daily charts and long term trends on weekly/monthly charts. We are already in a short term and intermediate term downtrend because a pattern of lower highs and lower lows is visible both on half hour charts and on daily charts. We have a very good support at 4600, which is from an upward

sloping trendline drawn on the weekly charts. The moment this trendline is broken that would be the first signal that a long-term bear market may be approaching. The actual confirmation would come when the previous low (which is at 4002) is broken. That is why we say that till the time 4600 is broken, we should remain buyers on dips.

But this may call for a change of strategy now. We are predicting the target for the flag pattern to be near 3820 which is well below both 4600 and 4002. If this target is achieved, we would no longer be in a long term bull market. That is why, we should now modify our strategy. Our strategy should be that “I am in a long term bull market which is true as long as Nifty is above 4600. I will assume that the long term bull market will continue to be a buyer on dips, but with a stop loss of 4600.”

We should not take any positions against the trend, which is why we are not talking of any buying opportunities right now. Life is full of ups and downs and so are the markets. Like in life, markets also see successes and failures (of patterns). Patterns do fail occasionally and this is one occasion where we would like it to fail. We would define failure of this pattern as a failure if (a) it fails to reach its target or (b) if it crosses 5650 on the upperside or (c) it comes back in the range of 5200-5650, in which case we can again wait for a pattern breakout/breakdown. As much as we may hope for a failure, one should be cautious as hopes rarely turn into reality in the markets. And the markets have their own minds. It may decide to go where we expect it to go (3820) or it may still decide to convert our hope into reality. Let's see what the market decides to do.

Your comments on this post are most welcome. Please click on the comments link below to post a comment.

Happy investing!!!


The following article has been written by Col. Mahesh Sharma of Surakshit Securities who shares his view on the markets.

IS IT REALLY ALL DOOM AND GLOOM???

All markets, particularly the Stock Markets, run on sentiments. In the middle of January this year history was made when the largest ever IPO by an Indian company (Reliance Power) was fully subscribed in less than a minute. By the time the issue closed it had been oversubscribed 70 times, which itself is a record for an issue of this magnitude. Yet, just three weeks after that we have had two IPOs, including Emaar MGF, which had been floated by a large Gulf based developer in collaboration with an Indian company, being withdrawn from the market. Such is the effect of sentiments in the market.

When the sentiment is good markets tend to ignore bad news and when the sentiment turns negative even the good news is overlooked. In today’s newsletter, we have seen the technical view of a chartist. Markets have a habit of over-reacting. In a positive sentiment there is irrational exuberance and we look for means to justify the extended valuations by discounting cash flows of future years and talk of embedded values getting unlocked. And when the sentiment turns negative we have a scenario of excessive pessimism with analysts calling it ‘doom and gloom’. The reality lies somewhere in between these two. And sooner, rather than later, the market will revert to the mean.

Let us take a rational view of what is happening today. Between 18 Jan, when there was almost a mad reaction of over 10 lakhs new demat accounts opened in a few days so that people could apply for Reliance Power IPO, and last week, when there were no takers for the IPOs of Wockhardt Hospitals and Emaar MGF, all that has changed is the sentiment. Yes, the market has lost nearly 1300 points on the Nifty, but, has there been any change in the fundamentals of the market?

We have, perhaps, a little more clarity of the American economy and it is likely that they are heading for a recession. However, the US Administration and Fed Reserve are fully alive to the situation and will do their best to ensure that suitable remedial measures are taken to protect the US economy. We have seen aggressive rate cuts by the Fed Reserve in January and there will be more to follow. Our Reserve Bank has refused to follow suit and is adopting a policy of status quo as far as the interest rates are concerned. This has led to a sharp differential (475 basis points) in the interest rates of the two countries. This is only likely to increase further when the FOMC meeting takes place next in Mar.

Water tends to flow where it has least resistance. Similarly, money tends to flow where the returns are better. The returns in Emerging Markets are likely to remain better than in US. And, within emerging markets, India, which is less dependent on exports to US and is growing largely on domestic consumption, is likely to continue to grow at over 8.5% in the next two years, at least. So, whether they like it or not, there is no choice for the US funds and institutions, but to invest in India. And, once the liquidity returns, one can imagine what it will do to the stock market, which after the recent correction is at a much healthier valuation. We have all seen what liquidity did to Indian markets in 2007, where even at a PE of 25, analysts on the media were crying hoarse to justify the rich valuations. And now, when we are down to a more reasonable PE of 17-18 times FY09E earnings, the analysts are predicting as if there is no tomorrow. All one has to do is to have conviction and start buying into fundamentally good companies, which are more oriented towards domestic consumption. So, all those retail investors and even some institutions who felt they had ‘missed the bus’ can safely think of ‘boarding’ the bus now that the valuations are more attractive.

Can the markets go down further? Yes, they can. I am not saying they will not. But then, we do not have to buy at the lowest. When the markets turn around, they may again lead to a sharp recovery. Though, I must admit that we are more likely to have a slow and gradual improvement rather than a V-shaped recovery. Nevertheless, there is not going to be too much of a difference between buying now and buying then. So, looking at things in a different light, this seems to be the best time to buy.

Good Luck!!!

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Nifty Shaves Off 200 Points

The Sensex went down by 612 points today while the Nifty closed 189 points in the red. The markets were pretty flat in the first half of the day and they started slipping shortly after noon. Our support of 5170 did provide some sort of support but soon that too was broken. That brings us to wait for our next support at 5000 levels. As seen from this 30 minutes chart of Nifty, the support of 5170 held only for an hour or so and the next hour brought the Nifty further down. While there is some support near 5000, but the target for this kind of a pattern breakout is near 4800. In the long term, we are still in a bull market, at least till 4600 is not broken. Any dips like these should be used by investors to pick up quality blue chip stocks. You will notice that after such a downfall the bluechips are the first ones to pick up.

For now, there seem to be no short term buying opportunities, which is why no stocks have been analyzed today. Keep watching this space to see some buying opportunities as and when they come.

Happy investing!!!

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Consolidation Continues

Today, because of the big sell-off in the US and the Asian markets the Nifty opened about 200 points down and then kept trading in a small range thereafter. Despite the excessive weakness witnessed in the markets today, two of the stocks recommended yesterday managed to close in the green. Keep following the newsletter for trading ideas on a daily basis.

We have been suggesting for a number of days now that the Nifty should consolidate in a larger range between 4600 and 5600. Over the last few days a smaller range between 5600 and 5170 has also emerged. We should assume that this support at 5170 should hold. However, if the market does decide to prove us wrong, we have the next support near 5000. Short term positive signals should emerge near our support of 5170. We remain in an intermediate downtrend which will end only if the Nifty crosses the upper resistance line of 5600 (which will keep changing over time since it is an upward sloping trendline).

Bharti Airtel has been in a range for a few days now. It was a doji day today (marked with an up arrow). As suggested yesterday, dojis are usually formed either at short term market tops or short term market bottoms. This doji forming near the bottom end of the range suggests that it may move back to its upper end. The RSI finding support near 40 on 29th Jan (marked with a down arrow) gives us some confidence about its strength. This telecom stock will give us a buy signal if it crosses above its trendline near 960 but for now we will keep our eyes are set on a small target of 950-960. Keep a stop loss below 870 for this purpose.

Nagarjuna Fertilizers, on its daily chart, has bounced back after trading near its support for sometime. The breakout in volumes is a positive for the stock. Depending on from where and to where the trendlines are drawn there seem to be two resistances near 70 and 75. One can buy it near the current market price of 52 and with a stop loss of 42, wait for a target of 70.

Reliance Petroleum has been in a small range between 150 and 180 for the last 15-20 days on its end of day chart. This range may break soon. With a stop loss of 150, it is looking good for a target of between 210-220 if one buys it above 183. But buy only if it crosses 183. We don’t want to get stuck in a range for another month (in case it does not break out of it) or see it breaking it on the downward side. Avoid any positions in the first 15 minutes.

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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The Wise Analysts

The Markets are in a habit of doing this. Yes, they do have a habit of making a fool out of analysts. I keep saying this regularly in my newsletter because that’s what the markets do. The business channel CNBC keeps asking analysts everyday about the future of the markets. You would realize, on careful examination, that when the markets are going up, 90% of the analysts are bullish and 10% may still be bearish. In this case, the converse is also true, that in bearish markets 90% analysts are bearish and only 10% bullish. And when the markets do take a turn you would realize that these analysts also change their stance as quickly. All laugh at them that what they had been predicting all along has gone horribly wrong. But ever realize why they change their stance so quickly? Because that is where wisdom lies. You must understand that “markets are supreme”. You can’t fool the markets but the markets fool everybody. So, wisdom lies in the fact that you follow the market rather than to go against it. Buy when the markets are going up and sell when they are going down. That is the only way to make money. And what do all of us small investors do? Exactly the opposite. We buy a stock because it is looking good. And then the price starts coming down. What do we do? Keep holding on to our position in the hope that the markets will recover. Unfortunately, hope does not work in the stock markets. The wisest thing for us to do would be to admit that the market has made a fool out of us and our bullish ideas and the position should be closed with a small loss rather than to let the losses multiply and let the markets make us bigger fools. That’s what the analysts do. They realize that they have been fooled and they move with the market rather than to defy it.

This is exactly what happened with me. You know how bearish I was a couple of days ago. I now realize that I was also fooled by the market. And suddenly, two days later the situation has become totally different. The Nifty, which was finding it difficult to go to its upper end of the range, suddenly broke its downtrending line (drawn over 25 days on the 30 minutes chart) and has now reached the upper end of the channel. So, the wisest thing for me, and all of us, would be to forget that bearish mood and to get ready to enter the markets with a long position.

I have been maintaining that on the longer term charts the range between 4500 to 5500-5600 should hold for sometime and I continue to hold that view till the Nifty breaks one of these 2 levels. For tomorrow, resistance lies at 5560-5570 and support near 5390 and a larger support near 5130. A closing above 5570 could show the Nifty going up to its next target of 5970.

No charts analysed today.

Happy investing!!!

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Simple Rules for Analysing Stock Charts

Some people have started becoming bullish now. Fundamental analysts have started saying that markets are fairly valued now and valuations have now reached at 2004 levels. But there are still many who continue to be bearish and say that the worst is still not yet over and there may be a retest of last week’s lows. I personally feel that after such a deep correction, the confidence of a lot of people has been shaken up and it will take time to build up that kind of confidence again. So we may just consolidate between 4500 and 5500 (Nifty) for sometime. The markets do go up now but with low volumes and there is a lot of selling coming in at higher levels. This is what happened yesterday. The markets did go up but with dry volumes. There was no strength in the move as far as the volumes are concerned. We can expect the volumes to increase once the crucial level between 5500-5600 is crossed.

Generally, those who have lost the confidence in the markets (because of the recent fall) do not enter at these levels. They keep waiting till the markets improve and till they feel that nothing could go wrong now. And then they enter. In fact that is the time to sell. The correct time to buy is now. Invest when the markets are beaten down, when the valuations are low and when there is panic in the markets. Be a contrarion to the general public. That is the way to make money.

My technical software is not working today and there are no charts to see and analyse and give my inputs for Monday. However, for all of you who want to learn to look at charts, I’ve consolidated a few simple rules which anybody could apply.

Though, you really do not need a charting software (there are so many charts available online) but you do need to study them. Apply a few simple rules and you are ready to go. But there will be some people who would like to buy a software and study everything in detail. Whenever you buy a charting software, it will come equipped with all the technical analysis tools and indicators. Many of you would have gone through some technical analysis books and would be raring to have a go at analyzing charts with one indicator, and another, and another and yet another.

Well, that is the first step to go the wrong way. The most important rule to remember while analyzing charts is that you have to keep them simple. Remember: “Too much of analysis leads to paralysis.” The best way to study charts is to apply only one or two rules/indicators or at the most three. My personal favorites are trendlines, RSI and MACD.

For those who just want to do it as fun and learn without any real investment in a software, here are a few simple rules you can apply.

Dow Theory: This theory was given by Mr. Charles Dow in 1931. He was the man who started it all. He used to say that stock prices move in trends and one should buy when the trend is up and sell when the trend is down. His definition of an uptrend was when the price made a higher low and then a higher high. Similarly, a lower high and a lower low signified the beginning of a downtrend. This theory can be applied to charts of all time frames.

Trendlines: Trendlines are those lines which connect at least 3 lows or at least three highs. An uptrending line should be drawn by connecting the lows and a downtrending line should connect the highs. The signal that one gets from trendlines is the breakthrough of prices. When prices penetrate an uptrend line, it is time to sell and when they go through a downtrend line, it is time to buy.

Moving Averages: Moving averages, in short, are moving trendlines. You simply calculate the average of the closing prices of the last x days (depends on what period you want to choose. Most common are 10, 21, 50, 100 and 200) and that is the value of the moving average for the last day. And you will be surprised to see how regularly prices find support/resistance at these levels.

For more indicators, it will become too complicated to calculate yourself and it would be best to buy a charting software and then we can probably hold a meeting/seminar and go into the details of analyzing charts. But one should remember that there is no such thing as a PERFECT INDICATOR. It does not exist. But it does not mean that indicators don’t work. All indicators are good and all indicators give very good signals. You just have to be consistent using them.

I hope this article was of some help to all of you. Do leave a comment in case you would like more such articles on a regular basis. Also leave a comment if you don’t like the article and would prefer not to be disturbed with such topics which don’t have any recommendations.

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