Jan 052014
 

PNB has gained about 19% since the beginning of December. However, the rise from the September low seems to be just a corrective rise within a larger decline.

The monthly chart of PNB shown below sports a distinctive lower low and lower high pattern. From an Elliott Wave perspective, the decline from 2010 to 2013 September can be counted as waves 1 through 3.

On 2nd Jan the stock reached 654 and then fell sharply to register a bearish outside day. This level of 654 is a perfect 25% retracement of waves 1 through 3 which is a characteristic behavior of wave 4 after a strong wave 3.

On the daily time frame, the move since September is slow, choppy,  overlapping, contained within parallel lines - once again a characteristic behavior of a corrective rally.

Now if we see PNB drop below 600, it is likely that the 5th wave down has started for PNB and a decline to a minimum of 400 is underway. The confidence in this wave count will increase if PNB closes below 558 and also breaks the parallel channel.

So, what would I do as a trader? IF and ONLY if 600 is violated, I would consider going short with 682 cash level as a stop. Ideally using some just out of the money put (should be liquid and have a sensible premium) as a trading vehicle. After, 558 is taken out, I would consider getting more aggressive and hold for the medium term target of 375.

If however 654 is taken out before 600, the broader theme of a 5th wave decline would still be valid but I will let the upward correction continue to about 680-721 before looking to go short. (I will email you all and update in this scenario). The bottom line - medium term outlook is bearish and a move below the September 2013 low seems likely.

Legal Disclaimer: This post gives an idea of how a trader chooses low risk entry points for trading and hence what you see in this post is for educational purpose only. This is no solicitation to buy or sell securities. I'm not a registered investment advisor and if you decide to take action on the above idea, you are agreeing that you take full responsibility for the profit or loss that you may sustain based on such decisions and agreeing to indemnify the author of the same. You may have seen me on TV suggesting successful trade ideas but remember trading is inherently risky and past performance is no guarantee of future outcome.

PS: This was a premium digital content and has been unlocked. The trade setup resulted in partial profit taking on 31st Jan and balance position was stopped at cost on 6th March 2014.

 Posted by at 9:14 pm
Dec 162011
 

Heromotors seems to be having some sort of love for double tops. The chart below shows the recent chart pattern for this stock.

Regulars of this blog would recall from here that ahead of Heromotor's announcement of ending its tie-up with Honda there was a similar formation and the stock had a sharp drop to 1375.

Once again there is a double top pattern in this stock when the benchmark indices are set to fall further. What can also be seen from the bottom panel is a huge block crossed ahead of this lowest close of 1965 and a breach of 1910 on the daily chart. Also the stock seems to have completed its 5th wave on the weekly charts (labels not shown).

Disclosure: My premium subscribers are short here.

Nov 082011
 

Just look at the chart below - if you were wondering why did Nifty open lower when SGX Nifty was up or why did Nifty suddenly spike up from the low of the day - here is one snapshot that tells you everything. The time stamp at the bottom are London time. If you place these charts side by side for anyday in the last few weeks, it has a striking similarity.

EUR and Nifty

All interference work temporarily. Resources are finite. Once resources and words are exhausted, the underlying trend takes over.. with even more vigour.

 Posted by at 10:09 am
Oct 032011
 

Just a quick chart check.

Nifty - Daily chart

If the sub-divisions marked are correct, we should see 4750-20 get breached soon, may be as early as this week. For medium to long-term please check the September and August post.

Sep 122011
 

Some of you have requested my short term view on Nifty and here goes.

Nifty Daily Charts

The upward correction that started from 4720 saw some serious selling pressure on Friday. It is possible that this correction may have ended as per the red scenario and a new low may be coming. Alternately, the upward correction may have a little more juice before another new low for the year comes through(orange scenario). So if anyone decides to go short, they need to do be ready with money management strategy around the 4900 zone of Nifty.

While we are here let us also look at the INR charts.

INR daily charts

The pace and steepness of the USD's appreciation against the rupee has all the signs of an impulsive move. You might want to go back and refer to our Aug 26th post on the INR for the bigger picture.

As some of you would have noticed from the comments section, I consider the breakout in the dollar index a significant contributor to the global bear case.

Dollar Index - Daily Charts

After building a base for 3 months, the dollar index has broken out of a range. This is likely to accentuate the risk aversion across various asset classes.

Given the strength in the dollar index and weakness in rupee - I will not be surprised if a new low comes through in the month of September for equity markets.

PS: Ill be on Bloomberg-UTV today at 8:30 IST.

Aug 262011
 

The Indian currency realised its triple bottom potential at the 43.85 level as the currency moved past 46 against the USD yesterday. The chart below shows the one year daily price movements of the currency and the bottoms are marked by the red oval. The price objective of the triple bottom pattern works out to a little over 48. Given that the stock markets are oversold and a bounce may come through for Indian stocks, INR could see a short-term pull back.

Indian Rupee - Triple bottom

If the currency pair ends today above 46.1 today (a weekly closing), it would be closing above its weekly "cloud" for the first time since August 2009. This would be another bearish sign for the Rupee (I recall turning bullish on the Rupee in April 2009.)

Indian Rupee - Weekly Ichimoku charts

In 2008, when INR closed above the "cloud", the Rupee weakness lasted several months until it peaked at the level of 52.18.

If we look at the movements of the INR from an Elliott wave perspective - it does look like USD/INR is in it's early stages of its powerful wave 3. The triple bottom low of 43.85 is just a shade over the 62% fibonacci retracement level of the move from the 2008 lows to the March 2009 high. This is a very common wave relationship.

Now comes the staggering bit - if my wave labelling is correct, the potential for the Rupee over the next several months, works out to at least a little over 57 and a typical wave 3 relationship would take the rupee to a level of 65!!!!

So there it is, another asset class that is closely related to the Indian stock market's price movements, reiterating the bearish case for India.

Aug 222011
 

Followers of this blog would know that I had been stubbornly insisting that the level of 4800-4700 on the Nifty has to come through before we could even talk about upside potential for the Indian markets. Having reached those levels on Friday, what next for the Indian markets?

In my June 14th post, we discussed the bullish and bearish possibilities for the NSE Nifty and had mentioned that the path shown for the bearish case was the bare minimum outcome. So if the bare minimum was 4800 Nifty, how much more can the Nifty head down? Now for the record, I was probably the only one who spoke about India having entered a bear market and the 2009 lows of Nifty being at risk as early as January 2011 and some of my friends in the media tell me the worst  they have heard so far is 4200 Nifty ( you might want to read here, here and here).

So what is the basis for 2009 lows? It is the BIG PICTURE on the Nifty.

Nifty - Monthly Charts

The chart above shows the monthly movements of Nifty since 1995. Let me keep this simple without labouring too much into technical jargon. The charts are telling us that the Indian markets are probably still correcting the steep rise from 2003 to 2008 and the potential to revisit the lows of 2009 is still out there. Now slightly technical - Elliott Wave guidelines states that Waves 2 and 4 tends to alternate and since Wave 2 Circle was a zig-zag, the potential for wave 4 Circle to be a flat corrections is quite distinct.

Of course there are other possibilities (like Wave 4 circle ending up as a triangle) but given that we have highlighted in our August 4th post that the global markets are in a bear market, I see this as the preferred path. Of course, we will be flexible and listen to Mr Market if we see signs pointing in the other direction. We can expect the best from the markets but one has be prepared for the worst. So, do not be too early build a portfolio looking at the sharp fall in price.  Remember, that market bottom formation is NOT an EVENT, it is a process. Even if this view turns out to be wrong, we will end up buying the market say 2-4% higher than the big low registered. That I think is a fantastic insurance, given that the other scenario presents a market drop way way below current levels.

And for heaven sakes - do not think about QE3 coming in and changing the direction of the markets. Here is a little peek into what happened after QE2:

QE2 was announced on Nov 3rd, within days three of the indices from BRIC countries peaked (India, China and Brazil) and so did the Hang Seng Index, Singapore STI and Colombia Index. Within in a month of QE2 many frontier markets peaked. So, we are better off keeping track of the trend rather than the noise of news.

Jul 112011
 

On Friday, India's benchmark Nifty saw some brisk selling and markets finished near the lows of the day. The selling pressure  reversed 75% of the previous session's gain and thereby producing the technical pattern known as "Dark Cloud Cover" (DCC) on the daily charts.

Nifty - Daily Chart

Questions that come up: (1) was Thursday's thrust above the medium trendline connecting through November_January highs a fake-out? (2) Is it going to beget further selling; (3) How does one position - buy the dip or sell the rip?

I wish the answers were plain and simple. The Nifty is in the midst of a very complex correction.  There are various ways to interpret the movement that has come off the June low of 5195. What is however clear, whether one is bullish or bearish is that, that a decline is under way and only the amplitude is in question. At 5735, wave v was equal to wave i (see chart for labelling), which is a normal ending relationship. So the high at 5740 was just 5 points over the ideal scenario. If the current decline continues beyond 5480-70 zone, the odds that the high at 5740 was a head-fake would increase. As long as Nifty holds this zone of 5480-70, I see this corrective rise having potential to make an attempt at more push higher which may end slightly above 5750 or fail at 5750.

If I were a nimble trader with 1-3 day time frame, I would trade banks and cap goods from the negative side. I were a conservative trader, I would stay very light until Nifty drops to 5480 or breaches 5750.

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: ,