Jul 052011
 

The chart below is the Elliot Wave structure of the BSE Capital goods sector:

BSE Cap Goods - Daily Chart with EW Count

The capital goods sector looks set for a sharp decline – potentially embarking on its 3rd sub-division of its 5th wave, which usually tends to be a powerful leg. The sector is also reacting from its 38.2% fibonacci retracement level of its decline from November to May. We would all recall that along with Banks this was a market leader on the way down from Nifty 6338 peak made last year. If my interpretation of the wave structure is right, we should see this index decline to about 12000 from its current level of 13842. The sector leader LT is reacting lower from its 50% Fibonacci retracement level and BHEL too, one of the weakest in this space, is about to establish a downward trendline. Look out below?

 Posted by at 3:16 am  Tagged with: ,

  30 Responses to “Capital Goods stocks starting their next leg down?”

  1. Amazing pick…..

  2. Hi jai

    I am new to this blog.Am pretty confused with the scenario right now as i am holding some stocks in delivery.Though 60% of them are in loss.Should i cover them as markets have gone up for the past 1 week and then rebuy them at lower levels if markets come down?Pls advise.Your advice is appreciated.

    • Hi Natrajan,

      Welcome to my blog. I cannot make any blanket statements here and even if I looked at your Portfolio and told you what to do, that can be interpreted as investment advise. I’m not a registered investment advisor.

      What I can say is that at this point defensive stocks like HUL, ITC, Bharti, Gillette could continue to do well whatever happens to the broad market. If you have any BIG bets on frontline stocks, I can give a broad roadmap.

      And do not worry, the markets have been confusing for a lot of people including experts 🙂 One thing you can learn from this is that, in future during such periods, you MUST keep your bets small in size or stay away from the market until clarity emerges.

      Hope that helps.

      Best regards,
      Jai

  3. Jai,

    i have been following you since september last year and am in awe of your analysis.Also do u feel that this rally will reverse from 5720 and the next wave will push it to 4800 levels. And I too want to learn to interpret chart using elliot wave count. Please could you guide me for he same…………..

    Best Regards,

    Nirav Shah

    • Hi Nirav,

      Thanks. As long as Nifty remains below 5944, the bearish prospects of 4800 would remain. The noose was tightening on the 2011 lows of 5177 on Jun 20th but now once again there is slack.

      To learn Elliot Waves – there is no better source than the classic book by Bob Prechter and Frost. You might even find some free resources on the web.

      Good luck with your trading,
      Jai

  4. Dear Jai,

    Today i succesfully shorted BHEL for a few points range..i entered at its downward level around 1970 and exited at 1958 or so..

    I am planning to re-enter in BHEL short with an immediate expectation of 1930 and 1880 levels..And in may be couple of weeks it may go back to 1700 levels..It looks very similar to Reliance in a sense that its not able to cross 2020 convincingly..

    Appreciate your advise and best take on the levels for BHEL (and L&T) ..From fundamental stand point (i.e. Result and FPO etc.) BHEL is a better short candidate IMHO.

    warm regards
    vimarsh p vasavada

    • Hi Vimarsh,

      Usually the big moves are captured by staying put in a trade. If you jump in and out of a trade – you might miss those gap down or gap up. But that is also a way to trade if you do not want to carry overnight risks. BHEL yes agree with the levels (about 1680) but important that the stock cracks 1900 on a closing basis.

      Good trading to you,
      Jai.

  5. hi… it was a very informative read…… as i m new to trading… i mostly do in calls and puts.. i recently picked up 5800 call @ 34.. and hoping that the bulls will continue the run upto 5750 so so in 2 to 3 days time…. would be grateful if you could guide me……….

    • Hi George,

      Call and Puts are best way to play the markets as they come with limited risk and unlimited profit potential (theoretically). The downside is, you have to get your
      timing absolutely perfect . If the stock or index reaches the desired level even one day late, you would lose out due to time-decay. Also options of some stocks are illiquid. Keep these 2 in mind while trading options. In this particular case, the probability of Nifty hitting 5750 in the next 2-3 days seems low. That’s my interpretation and I could be wrong.

      Good trading to you,
      Jai

  6. Dear Jai,

    Thats very true..i actually moved out in many winning positions and the next day observed gap-up/gap-down..And whenever i did stay put i observed reverse situation 🙁 and probably that has made me over cautious..

    As of today, I have taken overnight risk in UnionBank :). .. shorted @298.18 and hoping for 292 levels in couple of days..Appreciate your tips on that..in fact, your inputs gives me confidence..i wish i could just call you 🙂

    warm regards,
    vimarsh p vasavada

  7. hi jai ,

    i have TATA MOTORS [ IN DELIVERY ] 430 Nos at a average of Rs. 1240/- i have seen a low of Rs. 930/- Now it is Rs. 1030 . What is the future of TATA MOTORS looks like with a 2 months horizon?

    with warm regards
    sunil agrawal

    • Hi Sunil,

      Its in a counter-trend move, what I can say with a fair degree of conviction is that – this counter trend rally has low probability of exceeding 1130 (can stop well under it, but thats the max). And post that it should ideally decline to atleast 890 to 670. So your risk management level should be at 1130 or so.

      Hope that helps.
      Good trading to you.

  8. Will keep that in mind

    Thanks a lot Jai.

  9. thanks a lot…heeding to ur advie i had to take an exit at 30 and right now the call option reads 70…. great advice….thanks…. .|…

    • George,
      You are quite amusing. Rishabh, thanks for your comments and for stepping in.

      George, 1st of all, I never gave you an advice ( I do not give it to just anyone). Secondly, pls go back and read my reply to your previous comments: there was not even a suggestion or a hint that you shud get out of your position and I have clearly said I could be wrong about my interpretation. Thirdly, (this is a serious concern, and not a flippant remark), if you cannot afford to lose Rs 30x 50 = Rs 1500 you would be better off if you did not come anywhere within 5 km radius of the market. Fourthly, learn to take responsibility for your actions.

      Cheers,
      Jai

  10. Hi George,

    I am taking this liberty to reply on behalf of Jai.

    I too read this blog regularly and and find the analysis pretty interesting & informative. One should take, at times, everything, with a pinch of salt . First things first…”Jai had only given his opinion and had clearly indicated that he could be wrong. If you exited at 30, it shows that you yourself were a bit itchy to hold on to your horses. Why blame Jai for it. Had you made any money/limited your losses, I am sure you would be singing peans about Jai’s Technical analysis.

    How wrong and how right somebody could be…please read a bit about Jesse Livermore and yes “too err is human”.

    Trust that suffices

    Cheers

  11. Hi jai,
    with due respect to your expertise in reading charts ,what i would again like to request you is to revisit the key issue of whether this is a bear mkt or no?this could be a secondary mkt correction within the primary bull mkt wherein we make the mistake of letting go long term investments or not buy stocks on correction in anticipation of further fall in price..even if one does buy it is only for a counter trend rally and not investment..by the time confirmation comes about trend reversal it might be too late ..in a bear mkt one will get lot of opportunities to buy even if it is sligtly higher than bottom but in a secondary mkt correction such opportunities will not come again ..what a opportunity waste it wld be if confirmation comes of trend reversal after 6k is crossed wherin the bottom was made at 5177..

    • Hi Rajesh,

      What you say is a valid concern but a new bull market does not need my endorsement or anyone else for that matter right? 🙂 See my June14th post. While leaning towards the bearish side I have projected both sides of the picture. I have chosen to stick to the bearish side – and I’ve left the choice to others to pick their side. What works for me may not work for others. The classic definition of a bull market is higher highs and higher lows – the way I see it, we are not there YET.

      I have never been scared to make the big call. In February 2009, 1 month ahead, to the exact date I called the bull market ( see here) and on September 15th 2008, I had said “God save Nifty”, 1 month ahead of the crash. On both these occasions, I’m sure a lot of people thought I was nuts 😀 I did the same in Nov 10 and Jan 2011 (see my blog). The point is NOT that I have never been wrong.; it is that I have been more right than wrong at important market turns. While this is no guarantee that I will be right this time too, it’s just that these experience reiterate the confidence in my own interpretation of the market.

      Hope that helps.
      Cheers,
      Jai

  12. sir…..
    the charts are pretty confusing for a novice like me. what is your say on where the nifty and sensex will be at the end of the month. and does the capital goods graph shown in the blog have any direct impact on nifty.

    eager to read your views

  13. Jai,
    I agree on ur comments. One needs to own up to his/her actions.
    I continue to hold on to the 5475 short position but fast reaching my holding capacity. What’s your take ? Is there a chance of a reversal or the global euphoria takes us right up till the 5940 levels.
    Regards

    • Hi Rut,

      The pedal is being pressed to target the 5940 zone. Short term continues to be up, medium term would turn up if 5944 falls. Quite a bit of euphoria was seen in many small cap counters.

      Best,
      Jai

  14. Dear Jai,

    I have created short position in Sesa Goa @ 281.4 and SKumar @ 54.11. Appreciate your guidance on charts/levels probability ..

    warm regards,
    vimarsh p vasavada

    • Hi Vimarsh,

      My reading is that Sesa is in its final push down and the max downside is 231. If I were short at the level you are, I would use 296 as stop and take part profits closer to 260. Skumars though looks like has much bigger downsides over the medium term, the short term is trickier and not clear as to where to place your stops. One interpretation is that it will not overlap to 65.
      Good luck with your trading,
      Jai

  15. Jai Sir,

    Firstly thanks for the advice on elliot waves count. Now do you think that nifty has taken a turn and we could see nifty break 5000 this time????

    Awaiting you reply…..

    Nirav

    • Hi Nirav,
      Read the latest post on Nifty – I think there could be one more leg up, before a bigger decline starts.

      Best,
      Jai

  16. Thanks Jai,

    As there are results in coming days..Do you employ any specific strategy to trade such events.. i mean lets say our take is that Infy may break down 6 to 7% on poor guidance..How to take a calculated risk here..

    warm regards,
    vimarsh p vasavada

  17. Dear Jai,

    Just in continuation to my last query on “Trading Events” , i came across your analysis video on 7th july :
    http://www.moneycontrol.com/news/stocks-views/infosys-may-test-rs-2520-jai-bala_563418.html

    I hold the similar view and not able to decide when and how to enter in shourt position..I am just eager to go naked short here on 12th of july – infy’s resut day..but its a risky..

    Plz let us know if there are any specific option/future strategies one can employ for such events..

    • Hi Vimarsh,
      Read up and try to understand, straddles and covered calls – you will get some idea when to use and how to use and the risks involved.

      All the Best,
      Jai

  18. Dear Jai,
    Splendid call Jai. Bse CG now below 13000.
    Regards,
    Arun.P.S

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