An Elliott Wave Analysis of the Markets

Some of my readers, sure, would be waiting for this post. I can say this because I had done an Elliott Wave Analysis of the markets once before and that post was a massive hit with my readers. A similar attempt is being made now on the current chart of Nifty. But a disclaimer goes with this post and that is that I'm not an expert on the Elliott Wave Principle. I have a little knowledge about it and I'm taking a risk of trying and numbering the waves with this little knowledge, a process which can even prove the best in the field wrong (at times). I would also advise my readers not to give too much of weightage to this post as the market may prove me wrong. But it still might turn out to be useful to read, in case my numbering turns out to be correct.

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Commodities Now Looking Good

The Nifty after touching a high of 5777, just short of the previous high of 5815, has turned down again and closed 55 points in the red and has come back into the range of 5630-5730 that it was moving within. As of now, there is nothing to suggest that the Nifty has finished its uptrend and therefore we shall wait for some more time before taking short positions again. However, there is one thing that is causing concern. On 1st Nov, the Nofty made a high of 5649, while the next day the low was 5682, a gap of 33 points which was still unfilled. The lowest low the Nifty had made since then was 5679. Today, it made a low of 5677 and thus has come back into the 'uncharted territory'. This suggests that the gap may now be filled. While it should find support near 5650, but a move below that would be bearish.

Attached above is the daily chart of Aluminium. As seen from the chart, the prices had started rising from a low of 100.60 in mid Aug to a high of 117.55 in a month's time and then started falling and fell relentlessly till it had a 100% retracement to make a low of 100.70. Attached below is the weekly chart of Aluminium and shows that it has been moving within a range of 100-116 since July 2010 (except for a brief spell of about 45 days when it traded outside that range on the upside. This shows that the 100 support is very strong which has been tested and held successfully on a number of occasions in the last 28 months. And such a strong support is unlikely to be broken easily.

Coming back to the daily chart of Aluminium, we find that after making a low of 100.70, is now trying to go higher but is repeatedly finding resistance near the 23.6% Fibonacci retracement level of 104.68. As mentioned in a few of my earlier posts, such a large move in any direction is usually accompanied by a fairly large retracement too. Though, a retracement to the 78.6% retracement of 114 is also possible, but I think keeping a target of 111 at the 61.8% retracement level should not be expecting too much. A level of 111 seems more reasonable, especially because it has found resistance near these levels in the past too. Though, it may very well start going up from here too but I have a feeling that it may come down to 101-102 before moving up again. Whether it does, or it doesn't, Aluminium is clearly a buy on dips commodity with a stop loss of 100 for targets of 111, 114 and then 116.

Attached above is the weekly chart of Nickel. The yellow line shown on the chart is just a horizontal line at 850. But the price movements have been such that it seems as if it is a wonderful trendline and see, how beautiful it is. Last three years the line has held despite being tested 7 times till now. The latest movement shows that again it has turned upwards after touching 850. Lets come to the daily chart of Nickel which has been attached below. As seen from the chart, it's a chart very similar to Aluminium. An upmove, a 100% retracement, an upward turn and now finiding resistance at the 23.6% retracement level.

As was the case in Aluminium, here too, I expect that every dip should be used as a buying opportunity. An opportunity to buy it between 860 and 865 would be brilliant. Keeping 850 as the stop loss, we should be booking partial profits at 915 and 935 and full profits near 960 (the 78.6% Fibonacci retracement).

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US Elections Today - How Will The Markets React?

Finally, the day has arrived. The campaigning is over and the battle between the two candidates is over. The war, however, hasn't ended. The next battle will be fought between the voters and it will be they who will decide the fate of the two candidates, President Barrack Obama and Mr. Mitt Romney. As of now, on the eve of the elections, the situation stands that Obama may have a slight advantage over Romney. Now the question is how are we affected as investors by what happens in the US? This post is written just to help us understand the consequences of the US elections.

Most people are of the opinion that the markets will improve if Romney wins and there is a likelihood of a huge decline if Obama wins. The reasons behind that is the fiscal cliff. Thomas Kenny, on About.com, quite clearly explains what the fiscal cliff is and what it could mean for the US economy going forward. Both people, Obama and Romney, have different logic and different plans of action as to how to handle the fiscal cliff. Jean Chua of CNBC explains their ideologies and writes about their plans to handle the fiscal cliff and how it may affect the US economy.

Uttara Choudhury on firstpost feels that Romney will cut taxes on capital gains and dividends for both individuals as well as for companies and hence the markets will react positively to a Romney win. Joanna Shatney of The Wall Street Journal wrote last month that the markets may tank if Obama wins whereas if Obama loses, there may be a short-term rally in the markets but then all attention will shift on how the fiscal cliff issue is finally taken care of. She is also of the opinion that getting the elections out of the way will be a positive for the markets no matter who wins. As an old saying goes - "The markets can handle good things and the markets can handle bad things. What the markets can't handle is uncertainty." And elections, "certainly", are uncertain.

Statistics, however, show different results. And you'll be surprised to read them. Kevin Mahn, on Advisor Intelligence, has dug out data of how the markets reacted to the election results right from 1900 to the year 2008. And it shows that the market has always reacted positively when the incumbent president has won. You can read the complete report here.

The Election process (casting of votes) in America has already started and we now know how important it is for us to know who wins. This link will give you live updates of the elections every few minutes. The US markets have also opened (at the time of writing) and, though with low volumes, are slightly in the green.

As far as the commodities markets are concerned, Naveen Mathur of Angel Broking is of the opinion that the commodities markets will react positively if Obama wins and will tank in the case of a Romney win.

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How To Get STAGGERING Returns?

Nifty went up for the second successive day today closing 25 points in the green. As mentioned yesterday, there are signs visible that we may not go down further and that the trend might reverse from the bottom made yesterday. Though, a pullback to 5630 was expected even in case of a bearish trend but the fact that it made a high of 5650 and that it even closed above that level of 5630 (closed at 5645 today) makes it look like the trend may have reversed now. If I have any short positions, I should be closing them now and start buying in small quantities. A confirmation that we are in an uptrend will come when the Nifty closes above 5730. We should be looking to fully invest our money at that stage.

A lot of people ask me what stocks have I invested in personally. Well, I do have some holdings but I prefer to put my money where I see good returns. And I find that in commodities. Technical Analysis and your discipline put to work together on leveraged products works wonders. I know some of you would be going - "Oh, Commodities. They are so risky!" Well, I'll explain why people call it risky. Let's take the case of Gold, where the minimum we can buy is 1 kg. and in multiples of that. Gold costing 31000 per 10 grams today means that one kilogram of Gold would cost Rs.31 lakhs. Now that doesn't mean that one has to pay Rs.31 lakhs to buy a kg. of Gold. In derivatives, whether stocks, commodities or currencies, one just has to pay a margin amount. Let's assume that there is a margin of 5% on Gold. In that case one would have to pay Rs.1.55 lakhs to take the position. Lets assume that a week after buying Gold goes up to 31500, thus gaining Rs.500 per 10 grams. That would mean a total profit of Rs.50,000 on a kilogram of Gold. Since the price of a kg. of Gold was Rs.31 lakhs, it translates into a return of 1.62% on the product. But when it comes to return on investment (since you had invested only Rs.1,55,000) it gives you a return of 32.26%. A very good return on investment, indeed.

Now, Gold could very well have gone DOWN by Rs.500 which would have meant that you would have lost 32.26% of your money and would have been left with only Rs.1,05,000. Though, the loss on Gold was only 1.62% but you lost 32% of your money. That can be quite costly and quite risky when you put your entire savings to do that. And for the majority of the people, 1.5 lakhs is like their entire savings. But, unlike stocks, there are mini and micro lots available too. For example, Gold Guinea is a lot size of only 8 grams, which means the total product value is Rs.24,800 and a 5% margin on that would be only Rs.1,240 and a Rs.500 drop in the price of Gold would mean you would have lost Rs.400/- only. Still a 32% loss on investment but a lot more affordable.

This is where Technical Analysis comes in handy. It ensures, in most cases (if you have good knowledge and experience), that about 70% of your trades turn out to be profitable. And if your rules are good - meaning if you maintain a risk reward ratio of 1:2, which means that for every rupee that is at risk, you are expecting a return of Rs.2 then it means that if you take 1 trade a day, it is about 20 trades a month. A 70% ratio would mean 14 of your trades would work out to be profitable and only 6 to be loss making. A loss of 30% on the losing trades would mean a 180% loss but on the remaining 14 trades you make a profit of 420% meaning a total profit of 240% per month. Of course, you don't gain so heavily because usually I look for about a movement of half a percent (instead of the 1.62% taken in this example) to book my profits. That would still mean a 7% profit on 14 winning trades and 1.5% loss on the 6 losing trades meaning a net profit of about 5% every month or a 60% return per annum.

With a little more risk and some luck, it could go up to as high as 8-10% every month. Isn't that good? I would say, it's awesome. And that's where I invest most of my money. I know there is a lot of number crunching in this post and this may even sound confusing to some. But I'm there to help. Do drop me a mail or leave a comment below to let me know that you need help and we'll talk. Yes, I can manage your money on your behalf and we can work out an arrangement. Yes, I know, you will be missing out on the fun and the kick that you get from trading but ultimately, you will be getting what you desire most - MONEY.

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Sudden Bullishness Seen on Bearish Charts

In the first half of the day, the Nifty was still uncertain about which way to go. It opened slightly in the positive, came down in the red, went to the greener territories again and then back into the red. Just like a yo-yo. But then a surprise came. The Nifty suddenly started going up at around 1 pm and then there was no looking back for it. It went up as if it was never bearish. But does that mean the bearishness is over. Maybe, but we would need more confirmation before we change our view to bullish. What's going to happen in the future, only the market can tell us. We can only make predictions and predictions can sometimes go wrong too. The only mantra to success is that we recognise the change of trend as early as possible and not try to fight the markets when the markets have proved us wrong. Maybe, just maybe, what we saw today was the first sign of the trend changing.

Attached above is the daily chart of Nifty. As can be seen, it wasn't a big range candle. With a high of 5624 and a low of 5583, it was a range of only 41 points, which is not even a percent. A blue candle just a day after a downside breakout is not what's surprising because a pullback to 5630 was to be expected anyways. What's surprising is the strong one-sided upside pullback in a bearish trend. This is indicative of a stronger uptrend. Another thing that's surprising is that till yesterday most shares were displaying bearish patterns, and today most of them were bullish. Just to give you an idea, I did a quick scan to see how many stocks moved more than 3% up or down. And out of the stocks that I track, there were 15 such stocks. Out of these 15, only 2 stocks were more than 3% down while the remaining 13 were more than 3% up. Forget me, don't YOU find that surprising?

Seen above is the daily chart of Zee Entertainment. Now, this is such an interesting pattern. As can be seen, yesterday it tried to go below the 5 month old trendline, couldn't sustain at lower levels and made a hammer after a fairly decent downtrend. A hammer formation after a bearish trend is always a bullish sign. But we still needed that one blue candle for confirmation. And the confirmation came today, and oh, what a "resounding" confirmation with such a long range candle. What gives more confirmation to the expected uptrend is the RSI shifting back upwards from 40. I expect Zee to continue to go up and I see a target of not less than 209, could be more.

Attached above is the daily chart of Hindalco. Till now Hindalco was beaten and battered and was keeping a very low profile and was keeping quite subdued. A long range blue candle along with an Engulfing Pattern candlestick pattern suggests there is more upside to see. What gives it more strength is the fact that the RSI changed direction from 40. Moreover, the stochastics oscillator couldn't have been better placed going below 20 and just changing directions and is showing signs of improvement. While signs are already visible, that this time the trendline will be broken through but for now, we shall play it safe and assume a target near the trendline at 124 (and more if the trendline is broken through).

Attached above is the daily chart of Bata India. There seemed to be quite a good support between 865 and 870, as can be seen from the trendline. With that broken through without difficulty and quite decisively, there seems to be no difficulty predicting that there is more downside yet to be seen. The levels? Well, maybe, 770.

Crompton Greaves, on its daily chart, had been moving along in a downtrend since the beginning of days the chart, had broken through the trendline and was now going through a pullback, which is quite usually seen after a breakout. Some people, including Franklin Sanders, call this pullback as the last kiss goodbye. This just means that it had decided to go, started to go, then just turns back as if it has forgotten the kiss, comes, kisses the trendline and then, finally, leaves never to come back again. Well, not in the near future at least. What I liked about this chart is that it came back to the trendline, almost within, kissing distance before turning back again. Moreover, the RSI and stochastics are placed just where I like them to be (specially when I'm looking to buy). I would say, a target between 155 and 160 should not be too difficult for Crompton to achieve. It may just have to "greave" around a bit near 140 and 147 which may act as resistance levels.

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It's Water, Fire and Darkness - Thanks to Sandy

So, the Nifty was indeed waiting for the RBI credit policy to act as a trigger to break the range. It finally went below the lower end of the range at 5630 and closed well below it at 5597, almost 68 points in the red. Well, some people would argue that it could be because of Hurricane Sandy too. I don't deny the fact that Sandy might have had an effect but had that been the case, the market wouldn't have traded in the positive before the credit policy was made public. The mayhem started at 11.

But what about Sandy? Well, the NYSE was closed for the last two days because of Sandy and chances are it would be closed today too. How will the US markets react to this? How will the world markets react to this? How will the Indian markets react to this? It is said that when America sneezes, the rest of the world catches a cold. What will happen to the world when America is "literally" drowning, burning and turning into darkness? Today, no charts for you, just some links where you can get some interesting tidbits about Sandy.

First of all the destruction caused by the Hurricane Sandy. This page will give you a detailed description of the amount of destruction that was caused by the deadly toofan.

Well, if you want to watch a video on it, you can get thousands on youtube. And this link takes you to one of them.

And if the Sandy has caused so much destruction, how much will it cost the US economy. Well, it's a wild guess, but just to get an idea, you can visit this page.

Whoa, that was huge! So, the markets are in for a long long long period of gloom, doom and disaster. You are not going to believe it but this page will take you by surprise.

But what about the people who bought 3 days ago? People who bought and then the markets shut for three days and then they open deep in the red, they are going to lose a lot of money. Yes, they are and they should learn from their mistakes. This page will give you three lessons that you learn from closed markets.

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Maybe The RBI Credit Policy Will be The Trigger

Another narrow range day for the Nifty today. Opened with a slight gap up, continued its way down most of the day but showed a smart recovery of about 20 points in the last hour of trading and closed slightly in the green - just 1 point up. As of now it is continuing to trade in the range of 5630 to 5725. The cabinet reshuffle had virtually no effect on the Nifty. Maybe RBI credit policy will act as a trigger for the breakout from the range. Let's see whether it does happen tomorrow or not. The market is expecting the rates to remain unchanged or at the most a 25 basis points cut in the CRR.

As far as our previous recommendations are concerned, some of them have hit our target. Regarding our recommendations on Pantaloon and McDowells, Pantaloons has hit our first target of 177 and we'll have to wait and see whether it goes down to achieve our second target of 166 or not. On McDowells we had given a target of 1050 when it was trading at around 1250. Today it overshot our target too and touched a low of 989 intraday. In our recommendation on Sun TV, our target of 323 was achieved yesterday only but no fresh buying should be done here as it went below the trendline today and our next target for Sun TV is 275. A bounceback to 330-335 is possible in the next 3-5 days. IRB, Havell's, OBC and Ambuja Cement too are following our recommendations.

Attached above is the daily chart of BHEL. BHEL was displaying a bullish trend till now and today on the back of results (a 10% decline in profits), it lost more than 6%. As the trend still remains bullish, maybe, this is a good buying opportunity for us. Some good support is seen on the charts near 223. As seen from the chart, 224 happens to be a key support level (the 61.8% Fibonacci retracement) and the RSI is also close to 40. Tomorrow's movement, after allowing the market to settle down a bit, must be watched and BHEL can be bought on any signs of strength. However, if it continues to go down, next support may come in near 211. On the upside, we'll be looking at a target of 260 initially and then 290.

Attached above is the daily chart of Dabur. As can be seen from the chart, Dabur was respecting two trendlines till now and today it "disrespected" one of them and closed much below it. Though, the RSI still hasn't gone below 40 but I would still expect the price to come to the second trendline near 112-115 in the coming days. And maybe it can see a small recovery to 128-130 once again before starting its downfall again.

Attached above is the weekly chart of Gujarat Fluoro. And as can be seen on the chart, it has made a pattern which is not exactly a head and shoulders pattern but something on those lines. Though, it looks as if the price has broken through but I wouldn't confirm it this soon. I will prefer to see it go down to 310-315 before I would confirm that it has broken through the trendline. On a breakthrough of the trendline I expect a target between 170-180. But since this pattern is on a weekly chart, it will take a much longer time to go to that level. It could be as much as 8-9 months. So, patience is required.

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Still Rangebound, A Range Breakout to Decide Direction

It was again a narrow range day for the Nifty. A total intraday movement of 56 points (1%) but a better day, nevertheless, because it traded with a negative bias all through the day before recovering some of its losses in the last hour. I say, a better day because it went in the direction which we expected. And as long as it fulfills our expectations, it keeps us happy. And that's all that we desire from it. Just keep giving us profits if you want love from us. I still don't understand why the Nifty is still holding up. What is it waiting for - a cabinet reshuffle or the RBI monetary policy. Well, if it's one of those things then a move - this way or that - is coming soon. A move above 5725 would change (probably, though I don't like to change my views often) our bearishness.

I'm not attaching the chart of Nifty today as there is nothing new to show. However, as always am doing the daily analysis of some of the stocks. Friday seemed to be at bad day for the banking stocks. I say that because on my stock radar (the stocks that I regularly monitor), there were 13 stocks which closed 3% or more below their previous closes and out of those 13 stocks, 6 were banking stocks. Surprisingly, amongst all this negativity surrounding banking stocks, our buy call on OBC yesterday fell only by Rs.4/- and is still looking good for a move to 350.

Attached above is the daily chart of Reliance Capital, which has already come down quite a bit off its previous high. But, as we can see from the chart, Reliance Capital rose from a low of 315.10 in end of August to a high of 472.90 in early October, going up by 50%. Going up by 50% in 6 weeks is a big move and a big move is always (invariably) followed by a big correction. The same scenario was seen in Jan-Feb 2012 when the same stock went up 114% and then underwent a correction of 78.6%. This time too, after a move of 50%, I feel a correction of at least 61.8%, a Fibonacci ratio, is called for. The 61.8% correction will be completed at 375. That means a downward movement of Rs.42 (10%) from the current level of 417. Whether to stay away or to stay short - your call.

Attached above is the daily chart of Karnataka Bank. As seen from the chart, an inverted hammer formation on the top followed by a red candle signifies that the uptrend may have come to an end. And what an uptrend it was - a rise from 78 to 138 in six weeks, another big increase of 78%. And as I said before, a big move is followed by a big correction. In this case a 61.8% decline would mean the stock could come down to 101 whereas a 78.6% correction would translate into a level of 91. I see some good support for Karnataka Bank between 100-102 adding to the fact that 100 is a psychological support too and would expect the stock to come to 101, at least.

Andhra Bank's daily chart is seen above. An 8 month old trendline tested 4 times in the past was broken through but could not be sustained and today it came back below the trendline. In the process Andhra Bank has also made a pattern, which could be referred to as a double top, was also formed but would be confirmed below 105. A target for this double top formation would be close to 95 and I expect support to come in between the 93-95 levels.

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No Change in Chart Patterns - Wait and Watch

Not much change in the Nifty chart patterns today. The Nifty traded in a very narrow range today - a total movement of only 33 points between the high and the low - not even a movement of 1% during the day. After a whole day of trading, the Nifty managed to close in the green but did not make any change in the chart patterns. Individual stocks, however, showed some interesting movements, some of which have been analysed below.

Attached above is the daily chart of Nifty. As seen above, the chart looks exactly similar to the one shown yesterday, except for the last blue candle seen today. Today, as seen, was a narrow range day and also a harami, which after an upmove signifies that a short term reversal may be coming. So, nothing much to comment there on the Nifty and our view still remains the same that it should come down to the trendline before we think of buying again.

Attached above is the daily chart of Ambuja Cements which showed a decent increase today. As seen from the chart, the price came near the trendline which was providing support near 200. The stock made a low of 201 today and reversed from there and made a high of 207 before ending the day at 206.10. This candle signifies that the short term downtrend in Ambuja may have ended for now. It may be a low-risk buy at the current levels with a stop loss of 195 and a target of between 220-225 can be expected in the coming days.

Pasted above is the daily chart of Sun TV which showed a big downward movement of more than 6% today and closed the day at 343.45 against yesterday's close of 356.60. This movement comes after a small double top formation which will be confirmed below 338. Also seen on the chart are the RSI and stochastics indicators which show a bearish divergence along with the corresponding highs on the price chart. I expect Sun TV to move down to the trendline between 323-325 before any fresh buying opportunities may exist.

On the daily chart of Havell's, as seen above, a large candle showing a downwards movement, and the kind of pattern seen seems to suggest that there is more to come. The stock may find some support between 607-610 but eventually will have to break that support and may go right up down to the trendline to find support between 550-560. Stay short on Havell's below 600.

This is a pattern which I love to see, as seen on the daily chart of Oriental Bank above. This is called a Flag pattern and is so called because it looks like a flag, as can be seen from the trendlines drawn. A flag pattern is a continuation pattern and the confirmation of this pattern on the OBC chart means that the stock may continue to go up and it may have a target of 350-355 on the upside in the days to come. The only thing that scares me is the bearish divergence seen in both the RSI and the stochastics.

Seen above is the daily chart of IRB. As seen from the chart, the price of IRB showed a big downwards movement today closing Rs.22 in the red at 119, a movement of over 15% in a single day. Not only did it show a big red candle, it also closed below the good support of the trendline at 123. It now has a target of between 85-90 in the coming days. It may either go there directly or it may show a bounce-back back to the trendline at 123 in next 2-3 days. The RSI also going below 40 signifies that there is no support expected near the trendline at 123.

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Rangebound Now, Expected to Go Down

The Nifty opened at 5715 today, tried to go up, could not sustain the upmove, went down all the way to 5681 thus losing almost 40 points from its intraday high but recovered a bit to close at 5691, 26 points in the red. This downward movement may have been triggered by the world situation still looking grim and the European markets showing a weak trend during the day. The Nifty, though looking weak, has still not taken a decisive downmove, but sooner or later, will.

Attached below is the daily chart of Nifty. As seen from the chart, it is moving in a tight range between 5635 and 5730. Since the day we suggested that the downward movement has started, Nifty has not been able to break its high on that day. Of course there have been up days (3) and there have been down days (9) during this time (12 trading days) but none of the days has showed a positive sign. I'm surprised that the Nifty is still holding on.

As seen from the chart above, a decisive downward movement can be expected only when the Nifty breaks below the lower end of the range at 5635. And the blue trendline is going to provide support to the Nifty near 5470 levels. A break below the trendline is sure to make us see lower values for the Nifty but it is too early to comment on that now. As seen from the MACD attached with the chart, we can see that in the last 15 days, it has been sloping downwards suggesting weakness in the Nifty. Even the RSI not being able to cross 60 despite 3 tests suggests that there is no strength left in the markets.

Attached above is the daily chart of Pantaloon Retail, which has today shown its weakest closing of 186.75 since 18th Sep 2012. The next supports that I see on the charts stand at 177 and then 166. I reckon, it may be a good idea to sell the stock for these targets maintaining a stop loss of 200.

Attached above is the daily chart of McDowells, which is again showing a lot of weakness but still holding on. As seen from the chart, the stock is finding it difficult to go above 1300. It has a bit of support near 1200 but there is a bearish divergence seen on the charts with the RSI and the slow stochastics. The downward sloping MACD also shows weakness and it has already given us a sell signal on 12th Oct 2012. If you have holdings in the stock, it is a good time to exit while fresh short positions may be built up below 1200 with a target close to 1050.

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