Monday, July 28, 2008
Stock Markets are said to be the psyche of the country. After all it is the sum total of all the emotions, good, bad and the ugly. We as a nation have always bounced back with resilience against the dastardly acts of terrorism. The serial bomb blasts over the weekend were sad, and like always the Market has failed to buck under pressure. Yes we had flat opening. Yes we had a volatile session. Yes TODAY WE WERE NOT GOING TO GO DOWN!!! The 5 minute chart on the left is a trader’s nightmare and I can safely say for the scalpers too. These are the days when the markets give you an all important lesson; a lesson in Patience, a lesson to try and keep yourself away from trading. A lesson in how you can get whipsawed. The hourly on the right has given a lower pivot which logically should now be stop and reverse level for people who are long. Nothing much as changed over the weekend, below 4282 we need to cling on to 4250 otherwise 4050 is looks the next pit stop. Whereas to move up we need to blow out 4360/80 to reach our first halt at 4400/10 (50 period MA) above that we have strong resistance at 4460. One more reason for a subdued reaction today was that tomorrow our Central Bank is having a quarterly review of the monetary policy. I guess much of the action will only be, after the meet is over. Things can be really volatile as this week is the derivative expiry week. So as the adage goes if you are in doubt better stay out!
"When you go in search of honey you must expect to be stung by bees."
Sunday, July 27, 2008
Friday’s gap down was wee bit of concern. We just fell because Dow fell badly on Thursday. Later on the day we had sad news of serial bomb blasts in
The hourly chart also has the same story to tell. The focus again remains at the area shaded on the chart. The shaded area (4235-4270) has a cluster of supports starting with 200 period EMA (hourly), 38.2% retracement from point A to B, the 50 period EMA (hourly). This brings us back to the all important 4250. The salvation would come if we fall and manage to close above 4300 on Monday and later take out 4360/80 on closing basis. For the traders I guess 4250/4380 needs to be broken to generate good swings and as for the scalpers I guess it would be just Shoot and Scoot!!!
Saturday, July 26, 2008
Dr. Alexander Elder describes the New High-New Low Index (NHNL) probably the best leading indicator of the stock market in his book Trading For A Living. It tracks the number of market leaders. It measures the difference between the new 52 week Highs (strength) and the new 52 week lows (weakness) made during the given day. NH-NL confirms trend when it rallies or falls in gear with the price. The construction of this index is very simple; all you need is the number of new 52 week Highs, and you subtract from it, the number of new 52 week Lows. This can than be plotted as a line or a histogram. The NHNL Index tracks the strongest and the weakest stocks in the exchange and compares their numbers. It measures the balance of power between the leaders in strength and leaders in weakness. This is what makes it a leading indicator and the broader SnP Index tends to follow it.
Elder further explains the trading rules with NHNL in order of their importance. They are Divergences (I just love this one!!!) between peaks and bottoms of NHNL and Price, the trend of NHNL, and finally the level of NHNL below or above its centerline. A brief outline of the above rules is given asunder:
1. If NHNL traces a lower peak while the price rallies to a new high it creates a bearish divergence. This means that the bullish leadership is weakening even though the broader market is high. It’s time to book profits, or at least tighten your stops.
2. If NHNL traces a shallow bottom while the price makes a new low it creates a bullish divergence. This shows the bearish leadership is sinking even though the broader market is low. This is the time to cover up shorts and look for confirmation in price to go long.
3. A rise in NHNL shows it is safe to hold to long positions or add to them. When NHNL declines while the broader market is flat or rallies its time to book profit on your short term long trades. It’s vice versa in case of short trades.
4. If it rises on a flat day, it flashes a bullish message and gives a buy signal. On the other hand if NHNL declines on a flat day, it flashes a bearish message and gives a short signal.
5. If NHNL stays negative for several months but then rallies above its centerline, it signals a new bull move is likely to begin. This is the time to look for opportunities to go long using oscillators for precise timing. The opposite holds true when NHNL after spending considerable time above its centerline falls below it.
For a more detailed explanation of the NHNL, I suggest reading of Dr. Alexander Elder’s book Trading For A Living.
Remember Always Wait For Confirmation From Price!!!
Thursday, July 24, 2008
I am back, was busy for last two days. It looks like today was a profit booking day, ahead of Inflation Numbers which are now released post market hours on Thursday, I guess that saves us the Friday mid noon blues! First the 5 minute chart on the left, Nifty opened with a small gap up but failed to hold on to the highs. MACD was tracing a huge negative divergence on the 5 minute chart since yesterday and the weakness was confirmed by price, when it took out the low formed in the morning. After that it was one big down day. The price once below the 20 period EMA found very difficult to come on top of it. It broke out in the last hour of the trade. The hourly on the right has a new pivot high. The MACD is giving sell signal, time to book profits on the longs at least, if not going short. Yesterday we had made a gap of 110 points. The gap open 4371 is the first support. Below that Nifty is more likely to take support at 4350 level, breaking that would confirm that we are going to close the gap. These Gaps are better off closed who would want a bearish Island Reversal if anything goes wrong!!! On the hourly the support looks like at 4360/40 area where it has both the support of the trend line and the rising 20 period EMA (hourly). It is also the 23.6% retracement level of the recent move marked A to B. Below that is the 4260/70 which again assumes significance because we have a 200 period EMA (hourly) support there. There also lays the 38.2% retracement of the move A to B. And of course it also confirms the gap closing.
The Daily chart below shows what looks like a spinning top in other words we just churned today. I had written earlier, Price once it crosses an important moving average then there is more likelihood that it targets the next most important one. So has Nifty done with Price hugging on to the 50 period EMA once it crossed over the 20 period EMA convincingly. The daily chart also suggests supports at 4360/10. Where as the overhead resistance, if today’s high is taken out, remains at 4575/4600. These are bear market rallies, if you have been lucky to catch Nifty at 3800/3900 levels at little higher levels this is the time to take the money off the table. Nothing has changed overnight so no excuse for Euphoria.
When the Going gets Tough; the Tough take their PROFITS!!!
Wednesday, July 23, 2008
An Obituary printed in the
'Today we mourn the passing of a beloved old friend, Common Sense, who has been with us for many years. No one knows for sure how old he was, since his birth records were long ago lost in bureaucratic red tape. He will be remembered as having cultivated such valuable lessons as:
Knowing when to come in out of the rain; why the early bird gets the worm; Life isn't always fair; and maybe it was my fault.
Common Sense lived by simple, sound financial policies (don't spend more than you can earn) and reliable strategies (adults, not children, are in charge).
His health began to deteriorate rapidly when well-intentioned but
overbearing regulations were set in place. Reports of a 6-year-old boy
charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student, only worsened his condition.
Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do in disciplining their unruly
It declined even further when schools were required to get parental
consent to administer sun lotion or an Aspirin to a student; but could not inform parents when a student became pregnant and wanted to have an abortion.
Common Sense lost the will to live as the churches became businesses; and criminals received better treatment than their victims. Common Sense took a beating when you couldn't defend yourself from a burglar in your own home and the burglar could sue you for assault.
Common Sense finally gave up the will to live, after a woman failed to
realize that a steaming cup of coffee was hot. She spilled a little in her
lap, and was promptly awarded a huge settlement.
Common Sense was preceded in death, by his parents, Truth and Trust his wife, Discretion his daughter, Responsibility his son, Reason
He is survived by his 4 stepbrothers;
I Know My Rights
I Want It Now
Someone Else Is To Blame
I'm A Victim
Not many attended his funeral because so few realized he was gone. If you still remember him, pass this on. If not, join the majority and do
Monday, July 21, 2008
Yawn!!! A very boring day indeed. Just like the debate that’s going on in the parliament discussing the civilian nuclear deal with
Sunday, July 20, 2008
The coming week is very important for us considering the fact the government goes into the vote of confidence. It is often said that the charts (Price) discounts all news, and with the little bull moves we have made in the last three days it looks like the market senses that the government is going to survive the trust vote. Though I would really like to believe such a scenario, but I sometimes wonder “Can the charts (Price) discount Politicians!!!”? So if you want to play it safe use STOPS or still better is to stay on the sidelines till this dust clears. Not writing much today (did that for the post on Fake moves…), leaving you with the weekly chart (above) and the daily chart (below) with adequate ramblings on them…..maybe they sound intelligent or maybe dumb! Before I leave I would like to introduce a fellow analyst and trader Ilango, his blog I have added to my blogroll, it’s called JustNifty. The man breathes and swears Elliot Waves, so for all the fellow Ellioticians, his blog, I am sure will be a delight!!!
I was reading some Schabcker this weekend, and thought of sharing here an important lesson. He terms it as “The Chartist’s Most Confusing Enemy”. These are the False Moves (FM) and the Shakeouts (SO). Both these terms are often and more errantly used to describe identical situations. Let us differentiate between the two as;
- False Move is more commonly used to designate as somewhat longer price movement. It is less sharp and may extend over a week or more. It is usually considered as applying to puzzling and indecisive, but comparatively limited price movements which proceed out of definite formations in the wrong direction.
- Shakeout usually lasts for a day or two and is sharper in nature. Shakeouts occur at almost any time inside or outside a formation.
To sum up we can say that SO is definitely engineered by operators in order to gun stops before starting their mark up or mark down campaign, while FM is rather a result of temporary market indecision or withdrawal of professional activity.
Before I carry on to keep this article less confusing, I am using the term FM to describe all price movements which give or appear to give a wrong forecast. If they proceed far enough (in terms of price action) and accompanied by higher volumes they become more dangerous and troublesome of all price formations in chart analysis and practical trading purposes. False moves should not lead us to our actually trading on their misleading implications. Triangles are more susceptible to false moves especially at the apex. The logic behind this argument is that as the apex is neared the activity is so low (remember volume lesson?) and price range so narrow that it takes only a very small over balancing of technical status quo to bring about an erratic and temporarily false price movement.
So now the question is how do we defend ourselves from such a move? One such defense as most pattern trader would agree with me is paying close attention to volume. In most cases if the volume tends to increase on a move out of a pattern or through a critical chart line or an important moving average. Then a move is likely to be genuine. On the other hand if the volume is low or tends to diminish on the move then we have every right to suspect that such move might be a fake move. “Fake moves are attended by low volumes”, an exception to this rule is what we term as one day reversals or turnover days. One day reversal is marked by high volume almost all day, but with price starting in one direction in the morning, reversing itself on volume, and coming back in the later part of the day to the morning levels. When such a one day reversal breaks out o f a pattern it is more a characteristic of a Shakeout! Another assumption is that there is rarely more than one false move out of a pattern. Here again I would repeat the most important premise of Technical Analysis that no pattern is infallible and that in Technical Analysis there are no such words as “always” or “never”. I guess for this reason only the STOPS were invented. Yes STOPS! Use Stops they are the only real defense available to a trader.
AH! I can sense some people beginning to yawn already. So before I wind up this article let me just throw a light on another phenomenon which occasionally shows upon charts and which might appear on superficial analysis, to be related to the false move. This is called the “End Run”. This occurs when the price movement proceeding form a perfect valid breakout, out of a strong pattern, fails to carry as far as the strength of the pattern forecasts, but is quickly reversed into a considerable movement in the opposite direction. End Runs are more often traceable to previous strong support or resistance levels close to the breakout levels. Déjà vu anyone? Doesn’t it remind you of a perfect trade you took on a pattern and it just didn’t go far enough, because you never paid heed to the important S/R level that just lay ahead!!!
Friday, July 18, 2008
“Ooolala” this how a friend of mine reacts when he has a field day in intra day trades. I guess his exuberance is sometimes infectious hence this title. A quick recap of the Nifty action today (promised to cook a sumptuous dinner for the kids!), and more deep analysis we reserve for the weekend. Nifty opened strong following the global cues, and that was it. After that it frustrated a lot, and confused a lot many traders, into which direction to trade. No wonder a few stop losses were gunned on either side. But once it broke out of the gap resistance there was no looking back (by the way for the chart readers this was also a breakout from a small lil inverse H&S on the 30 minutes chart!). The shorts were scurrying for cover and new baby bulls were everywhere. The hourly on the right also shows almost a vertical move up. Like mentioned yesterday 4050, the bulls not only reclaimed it but also managed a close above it. There is something interesting developing in the hourly charts. Yes you got me! It looks we just might have a big inverse H&S. It would be good if we retest 4000/3980 and consolidate from there, then we would have ourselves the right shoulder of the inverse H&S formation! Having said that I would like to be excused as a budding amateur and a naïve chart reader, for forecasting too soon (I guess that’s the problem with us newbie’s). Anyway enough for today, we mull over Nifty later on this weekend. All the calculations can get really awry, considering the fact that our government is facing a vote of confidence next week. So Volatility, I guess will be the flavor of the season.
"A journey of a thousand miles begins with a single step."
Hmm to be trader....start by taking that first step…start reading charts!!!
Thursday, July 17, 2008
“As of now 3750 stays as support yet to be tested and on the higher side we go to 3848/3895/3920/3950! Will it be Step by Step or in one Big Candle???” These were the last lines I had written to close my yesterdays post. And with the look of today’s candle I guess we achieved all those levels in one day. Well this was possible only because of a very good rally in DOW last night. An easing in Crude prices and firm Asian markets in the morning. Let’s look at the 5 minute chart on the left. After the initial opening in the morning which met resistance at 3970, the gap opening of the 15th (yes gaps are very good basis of support and resistance), Nifty moved in a range throughout the day. If you were long yesterday then it was a jackpot otherwise nothing much in today for the traders, but for nimble scalpers, there were many opportunities. Now look at the hourly chart on the right. We have a LL in place and assumingly the pivot support for now. I have cluttered the chart with fib extensions. As you can see today’s move was exact 38.2% of the swing high and swing low, marked as A and B. On the hourly chart, immediate support lies at 3880. On the other hand, the overhead resistance is the falling 50 periods EMA/4000/and 4050/4060. Remember 4050??? The main battleground! Well on hourly charts it’s the confluence of the rising trend line resistance and 61.8% fib level of the above mentioned swing. It’s so strange that the same old level of 4050 is staring at us in so many avatars!
Looking at the daily chart below, it is crystal clear where we met our resistance today, right on the trend line. The daily also suggests 4050 level above this where it is also likely to meet the falling 20 period EMA. This 4050 is now beginning to look like a make or break level for the bulls and the bears.
"Little strokes fell big oaks."
Wednesday, July 16, 2008
It seems that any rise is used by the traders to take profits or square off their positions. This is what happened today. For a student of chart reading today was a great lesson in patterns. Nifty opened firm after yesterdays fall but failed to hold on to the initial gains. Take a look at the 5 minute chart above. We met resistance at 3920 levels and formed a Double Top there. The break from the base line along with the 20 period EMA signaled a perfect short for the day. A retest of yesterdays low, and then another up move. This time Nifty didn’t go far, and proceeded to make a bearish H&S. In this case this was a continuation pattern keeping the preceding fall in mind. Well there is a triangle break also (every H&S has a triangle to it!). This break took the day’s low with it and the rush of new shorts took the price down. However during the last hour of trading there was exhaustion and we made an inverse H&S signaling a possible hold to the selling activity.
The daily chart below also has some interesting things to throw up. Apart from the huge positive divergence in MACD Histogram we have been seeing for so long now. If you have noticed that in these last two days of vicious selling the MACD Histogram has failed to go below the zero line. Are the Bears exhausted? The ADX is also coming down, signaling a possibility of weakening of the present trend, and suggesting some sideway movement in the future. As of now 3750 stays as support yet to be tested and on the higher side we go to 3848/3895/3920/3950! Will it be Step by Step or in one Big Candle???
Tuesday, July 15, 2008
Today was an all out Bear Day! Nifty opened gap down inline with the global scenario. The first trade which I normally associate with these kinds of openings is “Fade the Gap” trade. It failed and the moment it took out the lows of the day, the stage was set for the Bear onslaught. The above chart on the left is the 5 minute chart. We can see after an initial hesitation, we finally broke down. After that every up move of the Price was met with strong resistance at the falling 20 period EMA. The chart on the right is the hourly. In my earlier post I had mentioned that breaking the trend line of this Bear Flag (or as some would prefer to call it an upward channel!) the first logical target would 4000-(4250-4000) =3750. The SCARY still stays at 3400! The daily chart below shows that we have penetrated 3848 made a new low and closed back above the blue line again. The down move should find some support at the trend line (black) below which is at 3735 very near to the target of 3750. On the upside, once again a laborious effort needed to conquer the supports we have broken! As it is said in technical parlance “Old Tops become new Bottoms and old Bottoms become new Tops!”
Monday, July 14, 2008
Today was a surprise day! With the kind of moves we had made on Friday many were expecting a severe gap down and continuation to the down side. With a weak Dow Nifty did look vulnerable. After testing the Friday’s low and retesting again, we finally build the momentum to start the up move. Nifty gave a couple of chances to go long. Our 4050 still stays the main battle ground between the Bulls and the Bears for closing. Whereas another important level of 4110/20, is required to be taken out by the Bulls decisively, to show their strength. The Daily chart on the right shows a Doji. So we are still confused. No change in status quo since Friday. I still maintain the same view “I wouldn’t short till we break 3990 convincingly and wouldn’t like to go long till we close above 4050 on EOD.”
I am putting 2 charts of Nifty Futures below. These were ego boosters after I goofed up on Friday. On the advice of a good friend I used my eyeQ rather than IQ and voila….I had a good trade and it even met its target to the last T!!!!
"First say to yourself what you would be; and then do what you have to do."
Saturday, July 12, 2008
Yesterday was a very valuable lesson I learnt. Though I am not a very aggressive day trader but still like to take a shot at it if I find a setup very convincing. Yesterday was one such day when I saw a beautiful set up to sell short right at top. Everything was falling in place and begging to take the trade. I just blew it up. There were number of lessons I learnt from the above experience. First I was so biased about being positive that the first initial impulse bar down, I ignored as a panic reaction. Second since the trend was screaming down I tried to take a position against it. I tried to go long. A CARDINAL SIN! Anyway I didn’t burn my fingers but singed YES! Third and the most important Lesson I learnt was what we all often repeat yet forget it when it matters the most “TRADE WHAT YOU SEE AND NOT WHAT YOU THINK”.
I am posting this chart today for all the friends who must have experienced the same situation some times in their trading career. I just felt awful yesterday and today, and needed to vent out. Anyway my old friend Shiree’s advice was comforting he told me not to berate myself but rather congratulate myself that I was the chosen one. He said this was one free lesson the markets gave you (see I didn’t loose money!) to remember and learn from it.
Friday, July 11, 2008
Crash Boom Bang! Going Went Gone! 4050 the sink or swim line, the triple support, caved in like thin ice. As for me I just feel like giving up TA and trade by tossing coins; heads I go long tails I go short! Another lesson in humility meted out by the market. PRICE is the FORCE! Yesterday’s Doji was in anticipation of today’s Inflation numbers, IIP numbers and Infosys results. The Inflation numbers failed to spook us but IIP did us in. Yesterday also we had attempted to break out of 4185/90 range unsuccessfully. Today in spite of a firm opening, we yet again failed to conquer that level and armed with the weak IIP numbers, triggered a vicious fall. I was really hoping that 4050 will hold but after initial struggle that also gave in. The solace; we seemed to have closed in its vicinity. The ugly; it took out lot of stops for longs. The 5 minute chart above shows a nice waterfall decline. The hourly on the left has now become a cause of concern. It Bears (pun intended) an uncanny resemblance to the flag we’ve had earlier (see both the shaded areas). A break of the trend line suggests a fall of 250 points. And to paint a real ugly picture if this pattern unfolds the way it is supposed to then technical target is approx 3400. But I suggest we cross that bridge when we come to it. On the daily chart shown below, one can see how beautifully we reacted to the falling 20 periods EMA. In my opinion we are back to sitting on the fence scenario. I wouldn’t short till we break 3990 convincingly and wouldn’t like to go long till we close above 4050 on EOD.
Thursday, July 10, 2008
DOJI! A confused state of mind. Couldn’t have done better than this, with a poor closing from DOW last night, and with no particular negative triggers domestically we had to end up confused! Nifty opened firm, inline with yesterday’s trend. The overhead resistance at 4190/4200 proved tough to overcome so we took the path of least resistance which was; Down. Once yesterday’s close caved in Nifty took support at exactly the same level where yesterday we had spent a considerable time consolidating before breaking out. The 4110/4115 levels. In fact in my post yesterday, I had mentioned that if Nifty pulls back to 4110, then one can take a small long with 4050 as stop. This level of 4050 is getting to be very important for the bulls to defend and bears to crack. The reasons are given in the chart below which I hope is self explanatory. They say a picture is worth a thousand words, therefore I am wrapping today’s post here and let the chart oops I mean let the picture below talk! Comprende ?
Wednesday, July 9, 2008
I never knew withdrawal symptoms are supposed to be this good (been tryin2give up smoking and withdrawals always make me go back with a vengeance!). It seems the market is celebrating the exit of the LEFT, as if cocking a snook and saying good riddance to bad rubbish.
Nifty opened with a strong gap up. Yes the overnight Dow gave a comforting feel. Normally in the event of gaps the first trade which comes to mind is Fade the Gap. It failed, in technical study, it is said if the gap fails to fill and the price resumes its journey in the direction of the gap then that move is very powerful. Looking at the intraday action on the 5 minute chart we can see that Nifty frustrated (I suspect it trapped the weak shorts) the traders with a very slow forming rounding turn. It was getting stalled at 4110/15 which was the 13 period MA on the daily chart. Once surpassed, we headed to conquer the next domain 4150.
On the hourly chart we can see we are heading towards the 4250 area. Nifty is likely to face some serious resistance there because apart from the trend line resistance we also have the falling 20 period EMA residing there (Double Whammy?).
Another interesting point in today’s price action is that we seemed to have broken a very important resistance 4050 with a gap. Though I would sound a bit immature (anyway I always admit I am a learner!), we can term this as a breakaway gap since it broke out of an important resistance. So till proven wrong or as some would say guilty (if the gap doesn’t hold and caves in!) I would say again 4050 becomes an important support! The road map ahead is clear 4250/4350. The only solace is that for someone who has missed the train, can enter if Nifty pullbacks to 4100/10 and holds. It’s a nice area to go long with a stop at 4045. This I assume should be the status quo till Friday 11 a.m. when we again have those dreaded, Inflation numbers. I suspect they won’t be bad this time maybe a minuscule difference compared to the last week’s numbers. You see this is politics. A government which is going into the vote of confidence is not going to leave any stone unturned. Who knows perhaps we reduce oil prices by 50 paisey. Now this will be cocking a royal snook at the LEFT!!!!
"If opportunity doesn't knock build a door."
Tuesday, July 8, 2008
Hit with a negative sentiment; a weak Dow and equally sad Asian markets in the morning, Nifty opened with a gap down. It is said of the Market; that it abhors uncertainty. After the initial gap down we went into a sulk frustrating both the bulls and the bears. We finally moved when the news of the LEFT withdrawing the support to the government hit the television channels. Finally they pulled the plug! How did the market react to it? Relieved! You see like I said earlier the market doesn’t like to operate in suspended animation. Everything has two sides to it, and it is just a matter of perception how we look at things. The market it seems had discounted the inevitable (Left Withdrawal) and now it was time to look at the brighter side of this deed. With the LEFT off their back maybe it will be easier for the government to push, faster the much needed economic reforms, which had fallen prey to the so called ideals of the Left. The government still has a trust vote to win, but I guess they will cross that bridge when they come to it.
Speaking of today’s intra day action, after the initial hiccups we seemed to have moved in a nice upward channel on the 5 minute chart. I admit that the chart looks clean with HH’s and HL’s, but it was very difficult and frustrating to trade it in real time. Too many whipsaws. On the hourly chart we have made yet another higher low (good sign for the time being) and managed to close near the 20 period EMA. This again brings us to the same familiar routine; we need to surpass the resistance provided by the falling 50 periods EMA and close above it. On the daily chart we have made a Hammer signifying our disliking to go lower. The two horizontal green lines marked on the daily chart hold the cues to the direction we would take. The price just needs to break any one of the two convincingly and we are in business. Till then Nifty will keep on frustrating the positional shorts and longs alike.
I will leave you with a beautiful gem regarding Technical Analysis. There are no such words as “ALWAYS” or “NEVER’’ in Technical Analysis!
Monday, July 7, 2008
The wise old, founding fathers of Technical Analysis had written ages ago that the Price likes to move along the line of least resistance. With so many resistance levels lined up overhead no wonder that Nifty wanted to move down, where it was least likely to encounter any problems! Nifty opened with a gap up and looked strong throughout the day. At one point it looked as if today’s gap was not closed we would have a small bullish Island Reversal! Well this was not to be, and we gave up the gains we had held so steadily till 3 p.m. We closed the gap too. Maybe all this was profit booking or like I said earlier, maybe this was indeed the path of least resistance! Above we have the 5 minute and Hourly chart. The 5 minute chart is adequately marked showing today’s moves and patterns. Look at the hourly on the right. If you remember in yesterdays post I had mentioned that the falling 50 period EMA (blue) is likely to provide resistance to the price and push it back to the comforting hug of the 20 period EMA (green). It looks like Nifty did just that today. We have a cradle support on the hourly chart. On the daily chart shown below we have a shooting star. The roadmap as suggested yesterday still remains, albeit the move up looks laborious and tiring! At the risk of sounding repetitive, I would say the Price needs to discover its Path of Least Resistance or make one!
Belief like any other moving body follows the path of least resistance.
Sunday, July 6, 2008
I had nice little week end with family and friends, now hoping Nifty will treat to an equally good week ahead! Let’s take a peak at the charts and see what lies ahead next week.
First we look at the weekly chart on the extreme right. We have a hammer and we seem to have completed a fib retracement of 161.8% from point A to point B marked on the chart. It indicates (as of the chart this week) we might have made a pivot low for ourselves on the weekly and time for some pullback. On such a scenario the weekly gives us the roadmap as 4050/4160/4250 and for the eternal optimists 4450! For any play on the long side the Stop loss is a few points below the recent low (3848).
Now we move to the Daily chart on the left. We see that we have consistently made Lower Lows and Lower Highs (yes I know we are in down trend!). If we focus our attention to the ellipse I have drawn on the chart, we will see a few interesting things. First of all we have a pivot low followed by a Higher Low. All we need now is to take out the previous Lower High and make ourselves a new Higher High to confirm a temporary shift in the trend to the upside (remember Dow Theory???). Secondly we have an inside bar on Friday (Thursday’s bar is also an Inside Bar). This is showing signs of some coiling waiting to snap in any direction; I suspect to the higher ground because the bias is such. To go long we take the entry on break of the IB top. Incidentally here also 4050 is the main key!
The third chart in the centre is Hourly. Again we have broken a series of Lower Low’s and now waiting to make a Higher High. We have just pecked at the falling trend line signaling some desire to break out. We have a double bottom on the hourly. I suspect that the falling 50 period EMA (blue line) presently at 4075 will provide the price initial resistance and push it back to test once again the comforting hug of the 20 period EMA (green Line) right now at the 3985 where also lies the trend line support.
Rest as they say is QUE SERA SERA!!!
Saturday, July 5, 2008
Thursday, July 3, 2008
Another trading day, full of action and anxiety. We almost gave up all the gains we had made yesterday. Nifty couldn’t take the burden of weak overnight global cues and the rising Crude. The Asian markets also were insipid. With a negative DOW we saw an immediate sell off (panic) in the morning. If you take a look at the 5 minute intraday chart above you will notice those first few red candles heading down. Nifty traded volatile after that and the first clear buy signal came in mid noon. We can see that though the price headed down the MACD histogram traced a bullish Divergence. The MACD lines stayed flat for most part of the day and finally hinted at a breakout with positive crossover. This was confirmed by a breakout in the price (breaking of the trend line and 20 period EMA). Later we made a double top towards the close and ended rather conservatively.
Taking a look at the daily chart below, we can see for now we have a significant low (pivot) at 3848. The only solace, the bulls have is that, for now the 3870 level is saved. Technically all the factors suggest a pullback (caveat; we deal here with probabilities and not certainties). The ADX is very high at 50 it needs to come to lower levels maybe around 30/35. Second there should be some reversion of the –DI towards +DI. Also another important tenet for the followers of Moving Averages. The price is overextended from the nearest significant EMA (20 period) and need to revert to it. On the face value of the chart it does look like a swing trade in the offing. I reiterate that the path of nifty still remains 4050/4160/4215/4250 and most probably 4300/4325 where it is likely to meet the falling 20 period EMA.
If Nifty trading is too volatile for your taste then look for stocks where the RS is strong vis a vis the index. I have RPL and ONGC on my radar.
"Give a man a fish and he will eat for the day. Teach a man to fish and he will eat for a lifetime."
Wednesday, July 2, 2008
Hope turns to despair turns to hope! We had a terrific day today, maybe this was the least that the market could have offered the beleaguered bulls, battered by incessant bouts of selling. Nevertheless a Big Blue Candle of HOPE! Another cautious opening and we almost slipped away. In the 5 minutes chart we can see that we got two very good opportunities to go long. On the daily chart the bullish engulfing or as some will call it the outside bar provides some comfort for bruised egos of the bulls. A temporary reprieve from the punishment meted out by the bears! This can be a swift pullback rally synonymous with the bear markets. What’s more satisfying is that we have regained 4050 and managed to close above it. If supported by global cues and saved from domestic political turbulence then Nifty can follow this path; 4160/4215/4250! On the flip side failure to hold on to 4050 will result in testing 3950 again. Below is the 25 minute chart of nifty (30 minute would also be the same). I have posted it to highlight that how keeping things simple and waiting patiently can give us some good trades.
Felix qui potuit rerum cognoscere causas: Fortunate is he who has been able to learn the causes of things!
Tuesday, July 1, 2008
In grayish doubt and black despair,
I drafted hymns to the earth and the air,
pretending to joy, although I lacked it.
The age had made lament redundant.
So here's the question -- who can answer it --
Was he a brave man or a hypocrite?
Hope turns to despair! Another painful fall. This reminds me off an example; Alexander Elder gave in his book. He wrote if you put a frog in a pan and pour boiling water over it, the frog will immediately jump out. But if you put cold water and put the pan on a lit stove you can slowly boil the frog alive. Same way this fall is unfolding, no violent downward circuits, but with very calm and measured moves, it is slowly and stealthily consuming, the weak and the desperate. Taking a look at the 5 minute chart we can see that we opened flat and cautious. With a nice little up move which eventually failed, we just slid down smoothly. As usual, all the pullbacks met their nemesis at the declining 20 period EMA. On the daily chart we are heading to touch the lower end of the channel, will it provide temporary respite? No idea. There are times when it is better even to put technicals aside and wait patiently. Like Schabacker commented, there are three rules to success in stock market; Patience, more Patience, and still more Patience. Nil Desperandum (Never Despair), this is easier said than done but at least we can follow Caveat Emptor! Pick your cherries with utmost care and patiently.