Down With Fever, No Analysis Today

Hi Everybody! As much as I wanted to write today but I just won't be able to do it. I am down with high fever and can't sit on the computer for long. My eyes are already sore and I'm sleepy too. Will try to be back with the weekend newsletter but just don't know how things will pan out over the weekend. All I can say about the markets tomorrow is, keep an eye on the inflation numbers at around noon tomorrow. It was 8.24% last week and is expected to cross 8.5% tomorrow. Any significant increase may put some downward pressure on the markets.

But please do subscribe to my posts, so that all posts are delivered free to your inbox and you don't miss any useful analysis of the markets in the future.

Happy Investing!!!

Read the Full Post Here

Repo Rate Hiked, No Major Reaction Expected

The Nifty opened in the positive today and then had a few volatile sessions where the market was taken up, brought down, taken up again, brought down again and stayed in a range of 4490-4540 throughout the day. It finally closed the day at 4523, 73 points in the green.

Before I delve further into the newsletter, I must apologise for posting just the charts yesterday without much analysis and commentary. Actually, it was pretty late when I started last night and was already feeling sleepy when I started.

Today, I have the 30 minutes chart of the Nifty for you. A little bit of on-the-chart-analysis yesterday told you that there was some positive divergence visible between the price and the Relative Strength Index (RSI). A positive divergence, or a bullish divergence, occurs when the price is making a lower low or a lower high and an oscillator indicator (like RSI, MACD, Momentum, Rate of Change etc.) makes higher lows or higher highs during the same period. This positive divergence has been marked by the thick brown lines in the chart.

Another area on the chart marked by a brown double sided arrow is the gap created three days ago which still remains unfilled. One of the characteristics of a gap is that they are either filled very quickly or remain unfilled for a long time. This gap should have been filled by now. The reluctance of the price today to go into the gap territory is clearly visible on the chart. This may not be a very good sign for the markets. A double resistance is close by at 4560 which is the 23.6% Fibonacci retracement level and the green coloured downward sloping trendline.

In case the Nifty were to cross this resistance, it should go on to fill the gap and reach the 38.2% retracement level at 4675 or find resistance somewhere within the zone of resistance marked by the black rectangle between 4670 and 4720. The RBI has increased the repo rate by 25 basis points from 7.75% to 8%. A major part of the market was expecting some sort of intervention, following the petrol and diesel hike, by the RBI before their next credit policy which is due in July end. Since a major part of the market was expecting a hike, it may have an immediate knee jerk negative reaction on the markets but no major downside owing to the rate hike is expected. Of course, a major downside based on technical factors (like the gap not being filled or the previous low of 4370 being broken) cannot be ruled out. The best thing would be still to maintain a cautious view.

Please do subscribe to my posts, so that you don't miss any useful analysis of the markets in the future.

Happy Investing!!!

Read the Full Post Here

Nifty Goes Sub-4400 Levels Intraday, Then Recovers

I had to go out in the evening somewhere and have just returned home and we are already closing in on midnight. While I have access to internet and charts at home, detailed analysis is likely to take time. So, will not go into any commentaries of any sort today. Will just throw in a couple of charts and leave a few comments on the charts itself.

Nifty Daily Chart

Nifty 30 minutes Chart

Please do subscribe to my posts, so that you don't miss any useful analysis of the markets in the future.

Happy Investing!!!

Read the Full Post Here

Nifty Technical Analysis: A Mixed Perspective

The Nifty, as expected, opened deep in the red and a little bit of support was found near 4465, which didn’t last too long, and the Nifty continued to go deeper in the red till it found support at 4412, much lower than the January and March lows. From there a recovery came about but with regular corrections every 50 points or so. Finally, the Nifty ended the day much lower than Friday’s close, but luckily above the three supports we talked about in yesterday’s post.

Seen above is the 30 minutes chart of the Nifty. As can be clearly seen, and as has been marked with the double sided brown arrow, the Nifty opened with a big gap of about 78 points. Even though the markets recovered from the lows, they did not go into the price territory of the gap created. A common principle of gaps is that markets do not like them and they want to fill/close the gaps as soon as possible. The Nifty’s last trade took place at 4516 but after calculating the last 30 minutes average the closing price was derived at 4500. One positive visible is that even though the January and March lows were breached on an intraday basis, they were not breached on a closing basis and this breach is not decisive till it is breached on a closing basis. So, we may see an attempt to fill the gap in a day or two.

I’ve also drawn the Fibonacci retracements for the decline from the top made on 16th May till the bottom made today. In one of my previous posts titled “Another Attempt at Elliott Wave Counts”, I had mentioned that we may be currently in the 3rd down wave of the C wave correction of the bull market. Now, read carefully because there are a lot of assumptions here. Assuming our wave counts of the C wave to be so far correct, we can conclude that the 2nd wave corrected the first wave by 61.8% (not visible in the chart above). And, assuming that we have seen the end of the 3rd wave today, we may expect the 4th wave to correct the 3rd wave by 38.2% or maximum upto 50% but less than 61.8%. This gives us a target of 4700 if it corrects by 38.2% and 4790 if it corrects by 50%, as can be seen in the above chart. But it could also be very well a correction of only 23.6%, in which case 4590 will provide resistance. And assuming that the 5th wave is as large (or as small) as wave 1 then we get a target of 4205 or 4315 depending on where the 4th wave ends. Hopefully, that should be the end of the bear market.

That is not the end of the analysis for today. Above, we have the daily chart of Nifty, along with the same trendline and the Bollinger Bands that we had in yesterday’s post. As seen from the chart above, the Nifty did seem to find support at the brown downward sloping trendline (considering that the close was above the trendline), but it is also evident that the close was outside the lower end of the Bollinger Band and this has bearish implications. This means that further downside is possible, as can be seen in January when the Nifty closed below the lower end of the Bollinger Band. It is also possible that a thing like what happened in March may happen again. The relevant period in March has been marked with a thick brown circle where we saw a close outside the band, then a bullish harami and then a bearish candle again closing outside the band and the markets, surprisingly, reversed from there. We have seen a similar pattern this time around where instead of a bullish harami, we have a piercing pattern and then two bearish candles as compared to one that was seen in March. So, whether we are going to see a January pattern repeat or a March pattern repeat is left to the readers’ discretion. I personally feel, it will be a repeat of the March pattern.

Please do subscribe to my posts, so that you don't miss any useful analysis of the markets in the future.

Happy Investing!!!

Read the Full Post Here

Nifty All Set to Open With a Big Gap Down

There are days when you are totally lost about what is going to happen in the markets. Today is one of those days. I have no idea whatsoever what is going to happen. I am totally lost. All the indicators are still looking weak and nothing suggests as if there is any strength that we can hope for in the markets. I need ideas from my readers about what they think about the markets right now. Are we going to go further down or are there any supports likely? Please do post your views in the comments section below this post.

Seen above is the daily chart of the Nifty. Also attached on the charts are the Bollinger Bands. It was widely believed that prices move within a band of 2-4% from their moving average, which means that prices tend to go 2-4% above their moving average, then reverse, cross the moving average downwards, go 2-4% below the moving average before reversing again. These bands were modified during bull markets, bear markets and sideways markets. Bollinger Bands work on a similar principle except that there is no need to modify the bands during different market conditions. The calculation involves the calculation of the volatility and standard deviation of the stock/index and based on that volatility the bands either contract or expand from the average. Here is a short tutorial on Bollinger Bands.

The only way to make profits in the markets is to buy low and sell high, or buy high and sell higher or sell low and buy lower. But what is low and what is high? The Nifty is near 4500 today. Is that high or is that low? If we say it is low since it is near its lows, how do we know that it will not go lower to 2600? And if it is high, how do we know that it will find support near 4500? Bollinger Bands give you no clear buy or sell signals. But they are very good at giving you ideas about what is going to happen and whether we are near the highs or the lows. Whenever in doubt, I use Bollinger Bands. When the prices are near the top of the band, we know that it is time to come down with support at the moving average and second support at the lower end of the band. Similarly, when prices are near the lower end, it may be time to reverse and go up to the moving average to find resistance there or continue to the top end of the bands. Of course, the situation changes when prices close outside the band, in which case it becomes a continuation of trend rather than a reversal.

Things are not clear even from the Bollinger Bands this time. We had three continuous closes outside the lower band in the last five days before a blue candle came and closed within the bands indicating a reversal. Things are fine upto here. This is where it starts getting messy. After this blue candle, the Indian inflation figures are declared with it increasing to 8.24% (no surprises there) and we get a red candle. The same evening crude jumps up $10 a barrel in one single day, the Dow Jones crashes by 400 points in a day and, obviously, the Asian markets will open lower on Monday. With all these global cues, our markets will definitely open with a big gap down. Now whether they will sustain those levels or come back up is another question. If they do sustain those levels and we get another close below the lower end of the band, we are in for trouble – BIG TROUBLE.

But, in case they reverse (my guess is, they should, but I could be wrong too), things may start looking a little rosy for sometime. Prices will reverse, there will be some short covering, prices shall go to the moving average between 4850 and 4900 and find resistance there and then come back again to complete the 5th wave of the C wave of this bear market, as was explained in one of my earlier posts.

Well, there are some positives available, though the negatives heavily outnumber the positives. The Bollinger Bands create enough confusion because of which I have not added too many trendlines. In fact, I have added just one small thin dashed brown trendline (marked by the green arrow in case you miss it in all this confusion). This is providing support to the prices near 4463, we have support of the March lows at 4468 and January lows at 4448. With three supports close together, there is quite a possibility of a small reversal from here. But it all depends on how it pans out tomorrow. Dow Jones, on Friday, was down 3.13% from Thursday’s close. If our markets open with a 3.5% gap down, they should open at 4466, still above the supports. So, maybe, just maybe, there are some hopes alive.

Please do subscribe to my posts, so that you don't miss any useful analysis of the markets in the future.

Happy Investing!!!

Read the Full Post Here

Inflation and Crude Oil Technical Analysis

The topic of my discussion today is crude oil. But because of the increasing oil prices we saw a hike in the prices of petrol. That will increase the inflation, so let me talk about inflation. With increasing inflation, the markets will come down, so let’s change the discussion to the markets. But this oil price increase may be because of the weakening dollar. Shall we talk about the dollar then? There are so many things to talk about, why limit ourselves to one topic. I’ll just write type whatever comes to mind.

Let us take a very simple example. Let us assume that milk and cows are not easily available commodity/animal. Let us assume that you have 5 cows with you (lucky you) and that you get about 50 litres of milk a day. Since milk is not easily available you don’t want to sell it all and would like to keep some for your future use, so you freeze it. And since your neighbours are buying from you, you sell about 28-30 litres in a day, consume 2 and freeze the rest. Now, your cows are getting old and their milk giving capacity is going down. You know that in a few months time you will be left with no milk. Your neighbours are requesting you to start selling 40-45 litres a day. Obviously, you won’t do it because when the cows stop giving milk, you could charge a fortune for a litre of milk.

Now let us say that the cows will give milk only for 6 months more, which is 180 days. At your current rate of 20 litres a day, when the cows stop giving milk you would have 3600 litres of frozen milk with you. The neighbours have been paying you with a kilo of rice for each litre of milk. But rice is easily available and its value is going down. And because of the value of rice going down, you have started asking for 1.2 kg of rice for every litre of milk. And because you are selling less your neighbours are even willing to pay 1.5 kg of rice for a litre of milk. You know that your 3600 litres of milk which was worth 3600 kg of rice, will now get you 5400 kg of rice. So, in effect you are richer by 1800 kg of rice without doing a thing. Would you sell more milk or just keep building up your wealth which is now increasing without even selling?

This is exactly what is happening in the world today. Just substitute crude oil for milk, the oil rigs for the cows, the Arabian countries owning the oil rigs for yourself, the rest of the world for the neighbours and the US dollar for rice. It is all so simple. Why would they sell more oil when their net worth is increasing every day because of the depreciating dollar? Why would they sell more when they know that 20-30 years down the line when the production is zero, the crude will be worth much more? Why would they sell more when they could get a fortune for a barrel of oil 30 years down the line?

Inflation jumped to 8.24% for the week ended May 24, 2008. On Wednesday, the government hiked the price of petrol by Rs.5/- per litre, diesel by Rs.3/- per litre and LPG by Rs.50/- per cylinder. The government says this hike could increase the inflation by 50 or 60 basis points. But inflation is not only affected by fuel price hike. This fuel price hike will have a cascading impact on all sectors from industries to agriculture and even services. The worst hit, as is easy to understand, will be the transportation sector. It will also mean increased house rents because the cost of construction material will be pushed up by the cost of transportation. And since almost everything needs to be transported before and after production, this hike would affect everything. In time, the food will also becoming dearer, and now with the LPG hike even cooking the food is going to become costlier.

The Economic Times says that historically a Rs.2/- per litre hike in petrol and Rs.1/- per litre hike in oil pushes up the wholesale price index by more than a point in the subsequent two weeks. The LPG price had not been increased since 2004 and this time with a Rs.50/- per cylinder hike in LPG and Rs.5/- and Rs.3/- hike in petrol and diesel respectively, the wholesale price index could move up about 4 points (though the Economic Times says only a point and a half) in the week ended 7th June, the figures for which will be released on 20th June, 2008. This would push the wholesale price index to about 234.5 to 235. A figure of 235 would translate into an inflation of over 10.48% since last year in June the Wholesale Price Index was 211.8.

Coming back to crude, the crude price jumped by more than $10 a barrel on Friday to a record high of $138.54. Did the government do something wrong in increasing the petrol, diesel and LPG prices? Absolutely not, but it came too late. This was a decision which should have been taken months ago. With the reformist finance minister, Dr. Manmohan Singh heading the government, we didn’t expect such a good economic decision to come so late in the day. But maybe the government was just waiting for the Karnataka assembly elections to get over. But the decision took more than 10 days after the elections to be announced. Every single day was adding up several crores of rupees of losses for the oil companies. But in the end such a drastic hike was a bold decision by the government. But despite that, Petrol sold in India is still about Rs.10/- per litre cheaper than what price it commands in the rest of the world. But where is it headed? $150 a barrel is not too far away and there even have been predictions of $200 by the end of the year. Let us do some technical analysis.

Seen above is the daily chart of crude oil near month futures listed on Multi Commodity Exchange (MCX) in Rupees. In this chart we are not taking the help of any line studies or indicators. The only thing on the basis of which we are trying to predict is the Elliott Wave Theory. Applying the Elliott Wave counts to the above chart, we can see that we are currently in the 5th wave. All waves have been marked as 1,2,3 and 4. 0 is where we have started the wave count from. You can also notice that within wave 3 also there are 5 waves which have been numbered in brown colour to avoid any confusion. Wave 1 was Rs.1076/- long while the length of wave 3 was Rs.1838/-, which clearly shows that wave 3 was the extended wave. This means that wave 5 should be, more or less, as long as Rs.1076/-. From the end of wave 4, this gives us a target of Rs.6288/- per barrel for crude when wave 5 ends. A target of Rs.6300/- would translate into a price of $148/50- per barrel in dollars. There the crude should, rather, could make a short term high, at least.

More tomorrow. Happy Investing!!!

Read the Full Post Here

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!!!

Read the Full Post Here

How Low Can the Markets Stoop?

The Nifty opened today with a slight negative bias. It remained like that for the first couple of hours or so and then staged a seemingly smart recovery but again found resistance near the highs of the day and in the afternoon, probably, when the European markets started opening that we started coming down, and pretty heavily too. It was a, virtually, one way slide for the Nifty and finally it found support at 4564.50, again very close to our support which we had been predicting between 4500 and 4550. So, yesterday’s doji could not force a turnaround for the markets. The bears weighed much more than the doji.

Attached above is the daily chart of the Nifty. Some interesting things can be seen on this chart. First of all, our first support at 4630, the previous low formed in early April could not hold today and was broken through effortlessly. Secondly, a trendline which has been in place since August 2007 was also broken through today. This could be significant for the market. The only ray of light that we can see in this dark tunnel is the Jan and Mar lows. They could, only could, provide support to the Nifty between 4450 and 4470. Below 4450, we don’t know where the bottom is. It could be 4100 or 4200 or even lower. As of this moment, there is no strength seen in the markets. It is looking all gloomy right now.

I was trying to see if this trendline, which has been marked with the green arrow, was very significant or not. For that I had to see whether it extended back into time or not. And it was then that I came upon a very interesting disheartening chart, the weekly chart of the Nifty. And I was shocked to find that this same trendline had actually started in April 2005 and had provided support to the Nifty 8 times in the last three years. And if this three year long trendline is decisively broken, then it could be very very significant for the market.

This is disheartening in itself that the long term bullish trend could now be broken. But what are the implications? What is the target? Can we ask the market how low it can go? The answer may be visible in this chart itself. Attached below is the same weekly chart of Nifty but zoomed in to show the period from Feb 2007 onwards. Could this be called a bearish head and shoulders pattern? Well, I’m sure it can be. The neckline, of course, is not straight but it doesn’t have to be. There are head and shoulders pattern which work very well with slanting necklines too.

What is disheartening is the fact that the market is virtually shouting from the rooftops to exercise caution. It is telling us that it could stoop down shamelessly to levels which we cannot even think of. But, of course, only after this pattern is decisively broken. The dashed vertical line marked with the arrow shows that the high was close to 6300 when the neckline was near 4300, a difference of 2000 points. And if it is broken and the breakout is considered to be at 4600 then we are looking at a target of …. Hold your breath ….. 2600.

Can this pattern fail? Well, definitely it could. There have been various instances of head and shoulders patterns failing in the past. Uma could vouch for that. She has experienced three head and shoulders patterns failures in Reliance in a single day. Believe me, this is one occasion where I would really hope for this pattern in Nifty to fail. I have a lot of long term positions which I would have to sell in a loss if the Nifty were to go below the previous low at 4450.

After this chart and analysis, I can’t seem to get any more words out of my mouth fingers. All I can say right now is just the three golden words – EXERCISE EXTREME CAUTION.

Happy Investing (if it still happens to be happy)!!!

Read the Full Post Here

Another Attempt At Elliott Wave Counts

The Nifty, taking the cue from red global markets, opened weak and within minutes of opening reached 4634, very close to the support of 4630, as was mentioned in the post dated 25th May titled “Nifty Breaks Important Support”. And from there it staged a magnificient recovery. Unfortunately, the recovery wasn’t enough to take it into the green but it was enough to end the day to form a doji candle (open and close at or very close to each other), as can be seen in the chart below.

As has been discussed in various earlier newsletters, a doji after a downfall is a bullish sign in the short term and the same after an upmove is a bearish short term sign. Now whether this doji is strong enough to take it up in the next 2-3 days or whether the bears win over this doji is yet to be seen. An upmove from this level could take the Nifty to 4800 where it should find resistance again. A downmove will have to go beyond 4630 to reach our estimated support between 4500 and 4550. There was probably another reason for the support found today, as can be seen from the trendline marked with the arrow.

I had written a post on April 21st titled "Are we in wave 3 of Nifty?" in which I had mentioned the basics about Elliott Waves. You can read that post before you continue ahead so that you can recall what I had written that time.

In response to that post, I received an email from a subscriber of mine who wrote the following:

“Dear Sir,

I want to ask you that are we in bullish phase, after the corrective phase of A,B,C? Previously you have written an article "Are we in wave 3?". In the same line I want to add that, now we are in WAVE 2, shortly will enter in to WAVE 3. Below I have given the image for right understanding.

Want to know your comment on it.”

He has been very kind to attach a chart also which is self explanatory and needs no commentary. It is attached below.

While the chart is beautiful, in my view, the analysis seems to be incorrect, at least at this moment. In my earlier post, which you have just read, I had mentioned that wave 4 should never never come in the price territory of wave 1. If it does, it means that our wave count was incorrect. That counting went wrong on 9th May when the Nifty came below 4970.80 (the high of wave 1), which led to the conclusion that it was either wave 2 forming, as my subscriber suggests, or maybe some other numbering pattern. It now seems that it isn’t wave 2 also that is forming because our target for Nifty is much lower, between 4500 and 4550. If that does happen then this cannot be wave 2 because wave 2 does not, generally, retrace more than 61.8% of wave 1. In this case it has already retraced a little more than that. In my opinion, we are still in the corrective waves A-B-C, which can also take the 3-3-5 pattern which means that wave A and B would each consist of 3 waves while wave C would consist of 5 waves.

In the chart above, I have numbered the waves A-B-C in large capital letters and the waves within these larger waves as 1-2-3-4-5 in smaller font. I think we have completed the 3 waves of the corrective wave A, the 3 waves of corrective wave B and are in the 3rd of 5 waves of corrective wave C. This 3rd wave could go between 4500 and 4550 from where we will have a small bounce back which would form wave 4 (not to exceed 4900) of the C wave and then a downfall again, which would take the Nifty to 4100-4200 (or lower??). That would, probably, be the end of the bear market from where it will be a new beginning. That is what the Elliott Wave Theory tells us right now. However, I must admit that I am not a master of Elliott Waves and the market could again prove my numbering to be incorrect, if it so decides. I, like all other analysts, respect the market and believe that market is supreme.

According to a1samud, there is a very famous saying by Mahatma Gandhi, which I quote below:

"A customer is the most important visitor on our premises. he is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so.”

I would like to twist it a little to fit the relationship of analysts and the markets. Here is my version of it:

"The markets are the most important element of our lives. They are not dependent on us. We are dependent on them. They are not an interruption in our work. They are the purpose of it. They are not an outsider in our business. They are a part of it. We are not doing them a favor by analysing them. They are doing us a favor by giving us an opportunity to do so.”

Happy Investing!!!

Read the Full Post Here

Bloodbath on the Streets! 4500 Visible

It was a bad day for the markets today. The Nifty opened flat today and tried on three occasions to go above 4900 but could not sustain itself at those high levels. And by 11:40, it was clear that the Nifty would come down. But what ensued was not what had been anticipated by day traders. The Nifty dropped almost 180 points from the highs of the day. By the end of it all, everything was looking red, the screen was red, the charts showed all red and there was ‘blood on the street’, again red.

However, it wasn’t such a bad day for technical analysts. The swing traders had already anticipated a fall when the Nifty went below 4990. All stop losses for long positions were hit and they were, and still are, merrily sitting on cash, anticipating further downfall. While they do have a target in mind (in my case, it is between 4500 and 4550, and some are even anticipating 3800), they will buy only when the Nifty gives a signal to buy. It may mean missing out on a small portion of the decline/rally but it captures most of the move. There are different theories in technical analysis – one which tells analysts to execute their trades when the target is achieved and another which tells us to buy or sell only when a buy/sell signal is received. I like to follow both theories. For example, in this case, I would look to invest 50% of my money when the target is achieved i.e. when the Nifty goes below 4550 and I would invest the remaining 50% when a buy signal is received, even if it comes at 4800. Both methods have their own pros and cons and I will, probably, talk about them in one of my weekend posts which come under the ‘Lessons on Investing’ category. You can click on “Lessons on Investing” anytime in the label cloud on the right to read such posts.

We have the daily chart of the Nifty with us today. I’ve not included many things on the charts today, so as to keep it very simple for the readers. I am now going to explain what I have included, what my reading is about the chart and why I feel so. I always like to give reasons for my analysis and it is there for everybody to see. As you can see from the chart, there are two trendlines – a downward sloping dashed trendline and an upward sloping solid trendline. The solid trendline shows where the Nifty broke through the support line and showed that a downtrend could start. And the dashed trendline shows the level above which the Nifty should come back in an uptrend. As one can see, and as has been mentioned, a downtrend was signaled when the Nifty came below 4990 and an uptrend would be signaled when the Nifty crosses the dashed trendline which today stands at 5020. Since this line is sloping downwards, this level would keep changing everyday.

The next thing that can be seen from the chart are the two vertical dashed lines marked ‘A’ and ‘B’. Line A measures the distance from the top of the recent uptrend to the trendline on that day. This line A has then been superimposed at the point where the Nifty broke through the trendline and this superimposed line is marked as B. The logic is that the downtrend should be as brief (or as severe) as the uptrend was, though, in some cases there is a possibility of it getting extended too. This superimposed line, thus, gives us a target of 4530 on the Nifty. Since this target is usually not exact, I’m taking it as between 4500 and 4550. You will notice that the same principle is used when calculating the targets for head and shoulders patterns, double/triple tops/bottoms. If you look at the pattern formed from where the solid line starts to where it ends, it does look like a head and shoulders pattern, though, with a very slanted neckline. You will also notice that the Relative Strength Index (RSI) has made a much easier to imagine bearish head and shoulders pattern. Also, one should notice the RSI within the small circle. Since the last week, the RSI was repeatedly finding support at 40, which in itself is not a bullish sign, but is definitely a positive sign which suggests that the market was showing some strength because of which the RSI was finding difficulty going below 40. This strength has been negated today with the RSI advancing to levels lower than 40.

Again, we are not looking at charts of any stocks these days because it is not the time to buy as we are still in an intermediate term downtrend. When the market again shows signs of improvement and there are some buying opportunities available, some of them worth a mention would find their way through on this page.

Happy Investing!!!

Read the Full Post Here