PNB’s medium term outlook

 Indian Market/Stocks  Comments Off on PNB’s medium term outlook
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
Mar 302012
 

Nifty(5178): Nifty on expected lines went below the low of 5165. The bullish interpretation at this point is that the move from 5630 is a corrective decline and the correction got over at 5135. What is in favour of this? The intraday momentum has not been able to clock new lows when price has done so. However, on the higher time frame , daily charts, momentum is with price.

What’s the bearish case – the market is in its third wave and the waves are sub-dividing in a 1, 2, 1, 2 fashion. INR is in favour of this scenario. Other currency cross-rates are favouring this outcome. China as pointed is bound for a big big low.

So we need to see Nifty stay below 5400 on the counter trend bounce. Quite possible it might not even cross 5320-5340. Today, being the end of a quarter – we might see some window dressing by FM’s

The chart below shows the above scenario.

Nifty intra day chart

 Posted by at 8:59 am
Feb 272012
 

Nifty(5429):

Nifty Weekly charts

A dark cloud cover on weekly charts on Nifty – this a reliable pattern but we need to see a follow through to this pattern. Momentum agrees with price so far. So we must look for a corrective decline to 5200 or 5077.

IF we see a bounce to 5490-5510 in the first 2days of the week, it might shorting opportunity for the extreme short term.

Supports:5390, 5210 and 5077

 Posted by at 8:47 am
Feb 232012
 

Nifty(5505):

Nifty Daily chart

Indian benchmark indices saw a key reversal day on the indices (see chart above).  A new swing high followed by a strong rejection of the new high. This is usually very bearish but momentum points to an unfinished move.  So, we will prefer a corrective decline followed by a another leg up.

BUT, if we see a “FIVE” along with this correction, we may have to conclude differently. As shown in yesterday’s chart, the bigger B wave can end either at 5650 or slightly below OR closer to 5975. Yesterday’s high was very close to 5650. Keep tabs on USDINR – if it crosses 49.8 that would the first warning sign for Bulls that things may not be smooth for them.

Supports: 5480, 5325 and 5077 (so watch for correction to get some support here – I prefer a decline 5325 to 5077)

Resistance: 5650

 Posted by at 9:00 am
Feb 222012
 

Nifty(5607):

Nifty weekly charts

The above chart is the ‘case 2’ we had outlined several days back in this month’s morning note. Beyond 5975 Nifty it would be ‘case 3’. We are very close to getting some very important clues as to what the Indian Nifty is going to do. USDINR – cross above 49.8 will be the first clue that USDINR will stretch to potentially 52 and as a consequence will indicate a corrective phase for Indian equities.

Sorry for the very short update – not fully recovered but will be able to respond to questions you might have on this chart.

 Posted by at 9:04 am
Feb 152012
 

Nifty(5416): Markets despite being overbought, continues go up on receding momentum. The move from early February is like an automobile coasting  on residual inertia of motion even though the vehicle has run out of gas.

Nifty(Left) and Bank Nifty (right) - Daily Chart

While this is very unhealthy and the markets will sooner or later drop vertically once the residual inertia is over, prudent risk management and patience is an absolute must. The retracement will completely erase the last leg of this short-term move. That leg started at 5077 and that will be some sort of guaranteed level we are going to see once the correction sets in. We will watch for a big one day reversal pattern or 5325 for confirmation – do not know which will be the case.

Having said that this move is clearly a powerful wave in the short term. What does it mean in the higher time frame? Is it a sucker rally that is correcting the entire decline from Nov 10 to Dec 2011 as I’m assuming it to be? OR is it the beginning of something bigger? The answers for that will come through ONLY when the correction starts. Stay tuned.

Nifty support : 5325, 5210 and 5077. Resistance: 5440 and 5495

Open Position: Long Coal India @326-328 Tgt 360 Upgraded stop 320 at close

 Posted by at 8:44 am
Feb 132012
 

INR Weekly Chart

We have bullish engulfing candle on USD/INR weekly chart. If you want go long on USD place a stop below 48.5 and hold. IF USD/INR hits 52.2 it would prove beyond doubt that the decline from 54.5 was corrective and a new high way beyond 54.5 is coming. I’ll be looking at the intraday price movements very closely in the coming days.

From a contrarian point – there are quite a few signals that are coming through for the US markets.

1) Larry Fink of Blackrock says Invesstors should be 100% in equities!!

2) Roubini’s firm has turned bullish

3) Barron’s magazine has Dow 15k on its cover and says even 17k is a possibility!!

So either a decline of significance is about to start for US markets (i would prefer Dow 13k or S&P above 1370 and then a fall) or the decline may have already commenced on Friday.

 Posted by at 9:16 am
Feb 082012
 

Nifty(5335) – Resistance 5415 and Support 5300 and 5240

USDINR has found support at previous 4th wave of 48.5

INR daily charts

INR should weaken to 50.2-50.6 but we need further evidence from the movement here to signal that a bigger move is beginning for INR. There is a small possibility of one more leg  of strength for INR .

New position: Chambal Fert Short @ 86.5-87 Target of 77 stop 92

 Posted by at 9:04 am
Feb 072012
 

Nifty(5361): Price is ignoring the stretch and the warning signs from momentum indicators and we are seeing Nifty movin up relentlessly. More than anything we need to look at the longer term now. Let me outline 3 possible scenario

Case1: A new bull market is underway:

In that case Nifty is headed north of 7000

The problem with this technical structure is this – the bottom at 4530 has been an atypical one. The speed of the move though is in favour. This is our Outlier case.

Case 2: An uptrend for the next 6 weeks and then a drop equal in amplitude to the drop from Nov 10 to Dec 11 resumes.

Nifty is headed for 5650 or 5950 with some pull back if this scenario is going to unfold.

Case 3: The bear case

Nifty ends its rise today or max tomorrow and targets a break of 4530.

I will expand on this with charts and labeling when I get more inputs from Commodities, Currencies and other inter-related markets.

My base case is SCENARIO 2.

 Posted by at 8:43 am
Feb 032012
 

Nifty(5269): Nifty formed a ‘Doji’ pattern after overshooting the important resistance at 5275. We have momentum disagreeing with price rise above 5217 on hourly and daily time frame. This is normally a precursor to a drop.

Nifty - Weekly charts

On the weekly time frame, Nifty is above the weekly trendline from the Nov 2011 highs. A close above this level today would tell us that we are not in the same environment that we were in since Nov 2011. Alternately, a strong rejection from here would mean some bearishness.

Likewise for many important inter-related markets like the Dollar Index, Gold and S&P 500 the markets are poised at a critical time and price window.

Gold – 1765 is a 61.8% Fibonacci retracement level. As I write this, it is coming off slightly from the overnight high of 1761. Euro – the zone of 1.32 to 1.35 is important and the 17 nation currency has got rejected twice off this level. The US S&P – VIX is at a dangerously low level, momentum indicators are warning off lack of fire power.

Time: Feb 6th/8th happens to be an important time window for a short term peak ATLEAST for equities.

The bottom line is the risks of being long here is very high – if you are long be nimble.

Nifty support and Resistances: A drop below SUPPORT of 5225 would mean the first signs of  corrective decline to the move from 4530 to 5291. We have to evaluate if it might mean something bigger. A bare minimum correction of 4950 should come through.

In the event Nifty continues to head higher, RESISTANCE is at 5345.

 Posted by at 8:59 am