Jun 212011

In yesterday's market action, India's Nifty breached an important trendline in a convincing fashion. All the corrections since Nov 2009 stopped right at this trend-line (see chart below) and kept the up trend intact.

Nifty breaches a 20 month trend-line

The weight behind this breach was ONGC, which also happened to complete a Head and Shoulders top on its weekly chart.

ONGC completes a head and shoulder pattern

Though Nifty is yet to break the February low of 5177, considering the fresh weakness in top four Nifty stocks (ONGC, Reliance, TCS, Infy), it looks like it would just be a matter of days before this level is violated. Relief rallies if any, are likely to come under pressure between 5400-5485.

Jun 142011

The Nifty has been in the range of 5600 to 5400 for the sixth week and has kept everyone guessing as to which way the range would resolve. As a good trader, one needs constantly play devil's advocate to your own views. So, here are the charts that present both the bullish and the bearish views.

If you are a bull:

Nifty - Daily Charts - as the bulls would like to read

The above Elliot wave count assumes that the November high was only a portion of a larger bull run and further gains are yet to follow. The violet wave 1 ended at the November highs and the subsequent decline into the January lows of 5177 completed the corrective wave violet 2 (which sub divided as a zig-zag red ABC).  This would mean that the move to the May high was wave 1 green (impulsive)  and is part of the powerful wave 3 violet which is likely to reach levels way beyond the all time highs.

Line in sand - If Nifty dips below 5320 it would weaken the bullish case though only a breach of 5177 would completely negate this option.

What's in favour? - Despite the global and regional weakness, India has been holding up well in the last few days.

What's against? - Reliance and ONGC ,the two heavy weights, are showing weakness. A big negative pattern  is under construction in ONGC. The assumed wave count to the May highs is a truncation - which normally does not help the case. The blue dotted trend-line shown is also likely to place a lid on the upward move.

If you are a bear:

Nifty - Daily Chart - as the bears would like to read

The bearish case has multiple options and I have taken the least bearish option. If we assume the November high was the end of violet wave 1, the decline into the January lows was only part of a larger correction Violet A, that sub-divided into red ABC. The rise into May high is assumed as corrective in nature, Violet B (which again sub-divided as blue ABC). The ongoing move from the May high is part of the Violet C wave decline which is expected to sub divide in to 5 waves. Of this 5 waves we have probably completed the first wave of the decline (blue 1 of Purple C) and we are the beginning of a powerful wave 3 (blue 3 of purple C) that would take market below 5000 (black arrows) or the corrective wave 2 is yet to complete(blue dotted path) before the powerful blue 3 of purple C takes Nifty well below 5000.

Line in sand - A move above 5650 would weaken the bearish case though only a breach of 5944 would force us to suspend the bearish bets.

What's in favour? - Exactly what is against the bullish case favours this - ONGC and Reliance. Also, the Dollar Index seems set for a powerful move that is likely to unleash a destructive move on most risk assets across the globe.

What is against? - Nifty has not managed to consolidate on the advantage of taking out the March lows and move briskly below the January lows.

PS: If you would like to know which side i'm leaning - i've been on the bearish side since November and I continue to do so.

Apr 102011

Last week, TCS hit new life time high on Tuesday but by the end of the week the stock closed under the previous high of 1220. The chart below is the weekly chart of TCS showing a 'gravestone doji'  formation suggesting supply is starting to over-power demand. The bottom panel also shows momentum diverging negatively with the price movement.

TCS - Weekly Chart

Drilling down to it's daily chart, it is quite clear that when TCS clocked new highs, there was not any significant volume expansion. The stock was not able to sustain above it's previous high of 1220 for more than a day and has continued to move lower. This price action is looking more like a head-fake rather than a true breakout. Now, if you are a conservative trader, you can wait for the breach of 1125 to book out longs and reverse direction. An aggressive approach would be to turn bearish below last week's low of 1184 with a stop placement above 1220 or 1247.

 Posted by at 4:52 pm  Tagged with:
Mar 282011

The 2.3% bump UP for the Nifty on Friday was quite smooth and brought a lot of cheer on the streets but the CRITICAL 5690 level still remains unconquered. Given the smart rise of the previous week, it may not seem formidable after all. Nevertheless, we will have to wait and see what the market does. So, let us do a what if scenario.

a) What if 5690 is taken out - the bullish case. The market structure that we thought was unravelling in this post would not be the case and markets would continue to head higher. The problem here is, the market has spent more days between 5600 and 5200 than it took to decline from 6182 to 5177. So it is looking more like a short-term bullish picture. And the question - How much higher? It could be around the region of 5900 but may not be much higher.

b) What if 5690 is not taken out - the bearish case. Obviously the old targets would still be alive while we may still have to see if we need to slightly review the market structure. But the markets need a quick decline - the longer Nifty holds above 5600, the odds of the bears losing advantage would increase.

A couple of  things that needs to pointed out here. Firstly the volume of the short-term breakout did expand slightly, it was nothing exceptional as the media is projecting it to be (see the horizontal blue line on charts).

Nifty - Daily Charts

Secondly, while the small caps and mid-caps tend to follow the large caps, they are yet to clock higher highs - risk taking is not yet back, at-least so far.

Mar 202011

If you thought the key price action of last week's trading activity in the Indian bourses was Reliance's drop on Friday, that is not entirely true. The CNX IT index's steady price erosion over the last week is actually more important.

CNX IT Index - Daily Chart

All through the corrective declines since the March 09 bottom, not once did this index drop below the 200 DMA. Yet another, sign that this is not a mere correction.

Infosys, the technology heavy weight has an interesting price chart.

Infosys - Daily Chart

The stock gapped below its 200 day moving average on Thursday and ended the week firmly below this level.

Reliance the stock on which the hope's of the bulls are pinned, established a firm downward sloping trendline and the stock has started to drop strongly.

Reliance - Daily Chart

While the talk of the week was the apparent resilience of the Indian market during a crisis , it was actually the bears who were scoring.  This is the first time since 2008 that all the sectoral indices  are trading below their respective 200 DMA!!

Feb 282011

When Reliance announced the deal with BP there was quite a bit of excitement amongst the analyst community. Some even thought this was a game changer for the stock. But here is the stock dipping under the pre-deal announcement levels.

Reliance - Daily Chart

If the stock closes Rs 10 under Friday's close, the deal essentially would mean nothing for the stock! What is quite obvious from the chart is that the gap resulted on February 22nd is nothing but a common gap and has very little potential, if any, to reverse the down-trend of the stock.

Feb 182011

The relief rally for the Nifty that began from the lows of February 11th, ended today with a strong reversal bar. As can be seen from the chart below, today's price action shows a rejection of the early highs and sellers have overpowered the buying pressure of the previous day too. This bearish outside day is marked on the chart.

Nifty - Daily charts

If my Elliott wave labelling is correct, Nifty should decline to a minimum of 5115 in the near term - could be even as quick as 2 weeks or less.

Keep these stock on your watchlist

 Indian Market/Stocks  Comments Off on Keep these stock on your watchlist
Jan 132011

The first one is the heavy weight ONGC

ONGC Daily Charts

IMO, this is not a perfect H&S top, as the volumes have not been supportive of the dip below the neckline. Nevertheless,  due to its high weightage in Nifty and fact that the stock is clocking lower highs and lower lows, it deserves our close attention.

Next is the cement major, ACC.

ACC Daily Charts

A close below the 1000 level with expanding volumes would give the bears the upper hand in this sector.

The third one is the real estate major DLF.

DLF Daily Charts

The stock is hanging by a fingernail above its major support of 255. Although DLF did dip below that level on an intraday basis, it managed to close above that level and averted a major disaster here.

If any of these stocks close below the levels marked here, the bears will have more ammunition to launch their assault on the broader market.

Week No1 of 2011 to Bears

 Indian Market/Stocks  Comments Off on Week No1 of 2011 to Bears
Jan 102011

The bears have covered considerable ground in the first trading week of the new year. Indian markets are clearly the worst performer amongst its global peers. The grizzlies have managed to plough into the gains of the past 3 weeks and handed in a loss of 3.75% for the Nifty and 4% for the Sensex.

Nifty Weekly Charts

An important development has been in the price action of copper - an ominous dark cloud cover formation (If you are a P&F chartist, a high pole warning). Although a follow through sell off week is needed here before conclusions can be drawn about the extent of the damage, copper is deemed to have a doctoral degree due to its ability to pinpoint key market turns. Hence, this chart remains the key market to focus this week to gauge the health of the global equity indices.

Copper - DCC on weekly charts

Yet another market where bears have made serious inroads last week has been in the precious metals space. While Gold's stumble around the $1425 level for the third time may be obvious to many, Silver the key out performer in this printed run to prosperity, has logged some substantial loss.  A reversal signal on weekly charts, a "bearish engulfing" pattern is a high probable indication that the run here is coming to an end at least for the intermediate term, if not for the longer term.

Silver - Bearish reversal sign on weekly charts

 Posted by at 4:28 am
Dec 152010

Hero Honda - Weekly Chart

The weekly charts of Hero Honda shows the obvious resistance at 2100. After failing to clear this level for the third time, the stock has plunged below the previous support.  A normal measured move for the above kind of  price action would be a move to somewhere around 1100 (the width of the previous price band). If you are an Elliot Wave fan, one can also count clear 5 waves to the highs and the current move is probably C leg or wave 3 to the downside.

So unless there is an immediate reversal with volumes, this might be just the beginning of a bigger fall for the stock. The stock is oversold in the short-term and may see a bounce to 1700's.