Saturday, August 30, 2008

A Traders Rehab Program!!!

The following write up is nothing but a reproduction of Dr. Alexander Elder’s work. Many of us have at some time or the other experienced a feeling when nothing seems to be working for us in the markets. A feeling that the dark forces of the Market, are always conspiring against us. A feeling of dejection that makes us wonder whether trading is really for us??? There comes a time when every trader has to answer some serious questions regarding his being as a trader. This is where Dr. Alexander Elder’s advocates a trader’s rehab program. Please read on what he suggests;

My first advice to a fearful trader who got beaten up in the market is to stop trading for a while.

Give yourself a reasonable break, stay away from the market for at least two or three months. You cannot make money while feeling hurt and panicky. You need to put some distance between yourself and your loss. It is hard to look at the markets objectively when a loss hurts like an open wound. Taking time off will lower the emotional heat and allow the healing to begin.

Once you’ve become calmer, you’ll need to make several important choices. First of all, you’ll have o decide whether you want to continue trading.

If you decide that you love trading and want to do it right, your rehab can continue. You notice I said ‘love trading’. Everyone loves the rewards, but do you love research, studying the markets, testing ideas, placing orders? A successful trader loves the process of trading and the rewards flow in pretty much as an afterthought.

If you love trading, you have a tremendously interesting journey ahead of you. You damaged your account but now you can turn those losses to your advantage, use your experience to become a more focused, disciplined and successful trader. In order to come back, you’ll need to establish and follow several strict rules. Use your past weakness as a source of future strength, a foundation of trading discipline.

I will recommend several steps for your rehab;

  1. Set up and keep good records. The two main values of record keeping are accountability and self-education. Only by looking back and learning from your experience can you go forward. Before you even think of placing your next trade, set up a record keeping system. All serious pros keep good records. At a minimum, you’ll need a spreadsheet for tracking your homework; one or two lines for each index or stock, a column for each day. You will need another spreadsheet for measuring available risk in your trading account. You will need to set up a dairy for your trades.

  1. Set up and follow money management rules. It was poor money management that landed you in rehab. Most trading account get damaged either by a shark bite – a single disastrous loss- or by piranha bites- a series of losses that together strip the account to the bone even though none is deadly by itself. You are in rehab because you’re already had an encounter with either a shark or a pack of piranhas, or both. It was painful experience, and unless you set up good money management rules, you’re guaranteed to have another one, which will feel even worse.

The 2% and the 6% Rules, repeatedly described in this book and Come into My Trading Room, are designed to protect you from the sharks and piranhas. You must apply them to every trade.

  1. Find a method or methods that appeal to you. You can look at many methods, but select the one that makes emotional and intellectual sense to you.
  2. Make a time commitment. Decide how many hours a week you can invest in trading. Do your homework everyday, including weekends.
  3. Start trading a very small size. You are likely to feel a little shaky coming out of your abstinence period. The pain of your losses is still fresh, your self-confidence a little uncertain. You may set p a record-keeping system and money management rules, find a method that appeals to you, and do your homework. Still when it comes to putting on a trade, you may be afraid to pull the trigger.

I have been impressed by Dr Alexander’s work and hope this little article will also have the desired effect on my fellow readers.

Weekend Views On Nifty!!!

I have been often referring to Nifty, as Miss Nifty, and boy does it display the traits of a maiden entrapping traders with her guile and charm!!! Remember the good old days when Chivalry was the flavor of the season, if a woman dropped her hat in a ring full of lions the MAN yes I mean the MAN jumped in and retrieved it. In return he got the woman and the rewards. Same is happening with Nifty trading in the last few days, many prospective suitors are served as lunch for the lions(Pros) and a few brave(traders who played by their plans and their STOPS) have come out to claim the rewards. Nifty has been baffling many a analysts last week. Lets dissect the charts and see if we can come up with something for next week.

As usual we start with the weekly chart shown below. A nice hammer with bullish annotations. What's more important is that we have a higher weekly close. Nifty though penetrated the pink horizontal support(4247), managed to reclaim it and now finding resistance at the falling trend line marked on the chart, which incidentally is also the 38.2% Fib retracement from point A to B. This weeks low 4202 was 50% retracement of the move from B to C and also the psychological round number support at 4200. Once again we come back to 4370 which needs to be crossed convincingly for any further up move, and the weekly range still remains between the two pink horizontal lines drawn on the chart. On the flip side any close below 4150 triggers the vicious move to the downside.

The daily chart below has a nice big candle of HOPE! It has tough overhead resistance at 4420, the 20 period MA and then at 4450. The daily is still trapped between the 20 and 50 periods Ma's. Again of noticeable concern is the behaviour of our pal the ADX. Its just fails to tango, and with it at 15, I wonder if Nifty can do much, other than making frustrating moves. We have a new HL in place on the daily chart, many long stops should be resting there. If trading Pivots is your style then breaking of this HL should trigger your short trade.

Finally the Hourly where the action takes place. We have had a nice sequence of LH's and LL's and to reverse this to an uptrend we now need to make a HH by taking the earlier LH at 4398 which suggest a target of 4450. The MA sequence is also nicely lined up, the Price has reclaimed all the three 20/50/200 EMA’s and now needs to hold above them. Since now a days we seem to be following more of the global action and Dow has given a negative close on Friday, so the opening would be a little cautious and inline with how Asia opens and then later Europe. Supports for Nifty are 4315/4280.

"To be a great champion you must believe you are the best. If you're not, pretend you are."

Muhammad Ali

Tuesday, August 26, 2008

Stunner! Nifty Recap For The Day!!!

Absolute stunner; Na I don’t mean the Opening but the follow through. The opening was much inline with what Uncle Dow and cousin Nikkei would have wanted from lil Miss Nifty….tow the family line!!! What was stunning was the way the bruised Bulls fought to save the lows of the day and slowly build them a Hammer. Not much of commentary today since the views I have been putting across earlier still hold water. Just leaving you with the charts (adequately marked), its back to 4370; the Make or Break for now. All long stops should now be strictly observed a tad below 4250. One more thing, though totally my personal view, if Pappu has to Dance the King (RIL) has to sing and sing it must soon!!!

The 5 minute action:

The Hourly drama:

The Daily movie:

"Our greatest joy is not in ever falling, but in rising every time we fall."


Monday, August 25, 2008

Nifty Recap For The Day!!!

Hmmm the 4370 and 4315 again seem to be back in the reckoning. I had yesterday mentioned that in the event of a Gap Up and failure to sustain above 4370 can be used as a shorting opportunity with a tight Stop above 4390 and 4395. Nifty surged in the opening trade (courtesy Dow and Asian markets), but then that was that. It felt like someone had given that initial push to Nifty and then Nifty seems to be asking now what? Right now we are just reacting to global markets and we don’t have any internal triggers which would push Nifty further. A quick glance at the 5 minute chart below corroborates our view, after the initial opening impulse, we just drifted aimlessly in a tight range. The opening was thanks to DOW and then we waited for direction from Europe for our mid afternoon trades. With no positive cues from that front, the WISE began to book profits and that lead to Nifty sliding below 4370 which was so assiduously held for most part of the day. The signal was given by MACD as marked in the chart.

The hourly chart is in a clear downtrend and needs to take out the previous LH to stall this downtrend for the moment. It’s interesting to note that the Hourly made a straight jab at all the three EMA’s, failed to hold on to them, but has managed to close yet again at 38.2% fib line marked on the chart. Holding above 4280 and then crossing over 4370 on the hourly charts might give us an inverse H&S pattern (too early to talk about that though).

The Daily chart also hasn’t changed much; we are still entrapped between strong S/R points (the Moving Averages and the TrendLines). The view still remains the same; 4250 and 4450 needs to be broken decisively. The traders have their stops in place, what else more does one want? Speaking of wants if only we were clear in our wants NIFTY trading would have been easier! But alas, us mortals we just love to stretch ourselves to beyond our limits.

Greed is a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction.
Erich Fromm

Sunday, August 24, 2008

Weekend Views On Nifty!!!

The chart above is the weekly chart of Nifty; we have a slightly bullish outlook from the weekly candle. Nifty is desperately trying to break away from the falling channel resistance. The 50% of the recent swing A to B was tested twice earlier with Price almost making multiple tops above that level but failing to hold above it. The last weekly candle suggestive of a Hammer, and yet another attempt to seriously break the falling trend line and close above it. We have two very clear levels marked for trading on the weekly chart as of now (see the two pink horizontal lines) 4245 and 4647, a trading range! Weekly closing needs to be above 4370 to take on 4421/4452 or anything higher if you fancy. On the other hand any close below 4250 will lead to an all important test of 4150, the last make or break level according to me.

Now we shift our attention to the Daily chart below; we have our HL intact till now. The price has taken support on the trend line coupled with the support from the 50 periods MA. The overhead resistance lays in the form of the long term falling trend line (drawn from Jan highs) and the 20 periods MA at approx 4415 level (remember which just spoke about 4421 while discussing weekly chart above!). The MACD lines have given a bearish crossover and the MACD histogram is down under, the ADX is still lackluster and the +/- DI lines are converging.

This brings us to the hourly time frame. Though there is a short term bullish divergence at play on the hourly chart but it’s more of a Bears delight. The Price is desperately trying to close above the falling 20 periods EMA. We have had the 20/50 EMA crossover, we have had the 20/200 EMA crossover and now all we need is 50/200 EMA crossover on the hourly to real start thinking BEAR! We have a LL and LH pattern in place. The hourly chart suggests strong resistance at 4370/4400 levels.

This is all very confusing to me; I am of a view that if you are long then your conservative stops should be at 4200 or more aggressive at 4250. Any Gap Up opening on Monday, if fails to sustain above 4370, should be used as a shorting opportunity with a stop above 4390/95. For me, for now, the path of least resistance is DOWN!

Thursday, August 21, 2008

4370 Goneee...4315 Goneee...Nifty Recap For The Day!!!

Funny yesterday we took solace in opening of the Asian bourses and firmed up and today; the same Asian cues at the opening got our goat, and later Europe also didn’t help much either. Like I said yesterday, that ahead of the Inflation data, not many people are adventurous enough. The 5 minute chart below is a simple picture of a down trend with the bulls not even in strong enough to muster the courage to touch upon the falling 20 period MA for most part of the day. A lengthy positive divergence in MACD; but failed due to lack of confirmation from Price action.

The hourly chart has broken the pivot low. Its heading for 4250 our strong point and below that 4220 which is the 50% retracement level of the swing as marked in the chart. Any close below this will lead us to 4150 and probably reverse our intermediate trend. Speaking of trends I personally feel we are in the following position right now; Long term: DOWN, Intermediate term: Sideways a.k.a CONFUSED, and Short term: DOWN. We have had the 20 and 200 period EMA cross above (another ominous sign); Nifty needs to reclaim 4315 and 4370 as quickly as possible to assuage the grief of the Bulls!

Finally the daily chart below, a picture perfect with the recent red bar stuck between the jaws; the 20 and 50 period MA’s and a nice cradle support below. The ADX structure is a bit confusing, we have the –DI and the +DI going for the KISS but the ADX is showing a reading below 20, does this mean this kiss is lacking the Passion and the Intensity??? RIL the King now has to SING(H) (it has formed a nice pattern suggesting a pullback) and Nifty just can’t dance without RIL otherwise 4150 is the line of control for the BEARS and the BULLS. I am out of the market; cant make up my mind to initiate a trade so will wait for a clear trend to emerge. If you are long you should have your strict stops in place and if you are short then don’t let yourself become Comfortably Numb (btw a terrific song from Pink Floyd). If you’re on the sidelines and feeling sad at missing the trades, I think you let the feeling pass and enjoy a good night’s sleep (a commodity which is always in short supply for a trader!)

"Pain is inevitable, suffering is optional"

Origin Unknown

Wednesday, August 20, 2008

Nifty Recap For The Day!!!

I am back from my holidays and I guess I didn’t miss much action either (ADX has all the clues if monitored carefully!). Anyway moving on to Nifty, we had a flattish opening, taking some solace from the Asian bourses which open ahead of us, and with some apprehension and volatility we bid our time to see how Europe would open. So far so good, a nice day, but the real foundation of this day was laid yesterday with the Hammer we made on the daily chart!

Not posting the 5 minute chart today instead lets move directly to the Hourly below. Yesterday’s action was fascinating, we slammed, dunked and closed above the 200 period EMA (Red Line) on the hourly chart. The small hammer we made on the hourly yesterday is our new pivot lower low. I would also call it the lifeline of bulls for now hence marked it as Bear territory on the chart. Speaking of today we have reclaimed the 20 period EMA (Green Line) and now facing resistance at the 50 period EMA (Blue Line) at 4445, which is right on the 38.2% retracement line of the recent swing of Nifty as marked on the chart. Nifty needs to take out 4485 (50% retracement plus we have the 20/50 EMA cross there) and 4525 to be able to sustain this up move. Any close below 4315 negates this uptrend and we head for the all important 4150!

The daily chart below has the HH and HL sequence intact. The price is trapped between the 20 and 50 MA’s. The ADX is STILL, and MACD lines have started to give a sell signal. Too many resistances overhead (my chart is cluttered with those dashed lines), it needs to close convincingly above 4480/4500 to aim for 4630. We are now looking out for cues from the global markets. Tomorrow also we may see unwinding of positions in the late trades’ coz of the inflation numbers due in the evening. Personally I wouldn’t play positional; any chance to get into swings is a good idea. For all aggressive longs 4315 should be the stop loss and for the conservative players it should be below 4250.

"People of mediocre ability sometimes achieve outstanding success because they don't know when to quit. Most men succeed because they are determined to."

George Allen

Thursday, August 14, 2008

VANDE MATRAM! Weekend Views On Nifty!!!

We have wrapped up our market for the week. We open on Monday now; hopefully the policymakers won’t have any surprises for us over the weekend. So Monday opening would be more a continuation of how daddy Dow closes on Friday and cousin Nikkei opens up on Monday, till then enjoy the weekend. I am off for vacation with family and will be back on Tuesday so writing the weekend views today itself (my friend Ilango has a complaint that I post late).

The first chart up for post mortem is the weekly chart of Nifty shown below. The latest weekly candle looks more like a reversal candle. This particular candle has done two things; one it has jabbed at the falling trend line (thick black line) and attempted to reclaim the highs made on July 2007. The flip side is that we have closed below the 50% retracement. Speaking of retracements (marked on the chart) the 38.2% and 23.6% are exactly at those levels which we have been talking about quiet often; 4370 (most likely to be probed, tested and hold) and 4150 respectively. Between these two we have 4250 a strong support.

Moving on to the daily chart we have a red candle which has just closed in the vicinity of the long term falling trend line(again thick back line) and the Cradle I had mentioned in my previous posts. Nifty is more likely to test 4350/4400 zone, as on the daily chart we have a trend line support their along with the rising 20 period Moving average. The MACD histogram has been tracing a bearish divergence; on the other hand the MACD lines still have to give a crossover sell signal. The most important aspect of this chart is that we still have our sequence of HH and HL intact. To logically assume a trend reversal, we have to make a new lower low or take out the previous HH (both pivots shaded on the chart). Anything in between is what we call congestion or a consolidation. This is more likely to be the scenario as suggested by the flat ADX!

This brings us to the micro chart; the hourly. Here we have broken out of the rising wedge and my wolfee of course. We have a Double Top (confirmed by breaking of the HL pivot between them) and with both the 20 and the 50 period MA’s overhead we should be following the path of least resistance and that happens to be the trend line support (another cradle there!) and the 200 period MA below.


"To establish true self-esteem we must concentrate on our successes and forget about the failures and the negatives in our lives."

Dennis Waitley

Wednesday, August 13, 2008

Nifty Reacap For The Day!!!!

I couldn’t update the blog yesterday, as there were some concerns with my comp. Guess didn’t miss much though. Let’s see how lil Miss Nifty behaved today! Well with daddy Dow down yesterday and cousin Nikkei also not in best of health this morning, our Nifty was left alone to fend for herself. The 5 minute chart on the left says it all. A gap down which was filled convincingly, but then uncertainty and volatility took over and had their toll on Nifty. We had important SEBI meet, and all sort of rumors regarding the policy decision on P Notes. For the nimble players Nifty gave two very good trades; first at the gap open “Fade the Gap trade” and second, a good convincing short once it broke the trend line and rising 20 periods MA in tandem followed by a clear sell in MACD. The hourly chart on the right is another delight from the point of view of a Technical Analyst; it has something both for the Bulls and the Bears to hold on to their views. For the bulls we have the HH and HL sequence intact, and till this is not disturbed the assumption of uptrend holds. Whereas on the other hand we have broken out of the wedge and the Bears welcome this jolly good sight (last time when we did this we went downnnnnnnn!!!) The Hourly has a triple bearish divergence MACD, corresponding to each new high Nifty has made. Presently the Price is stuck between the 20 periods and 50 periods MA’s. We need to break 4460/70 (4490 still provides some solace) to get ourselves a LL and initiate a trend change. Breaking that should take us to test our primary support of 4370 (trend line support and now also the 200 periods MA is residing there!)

Moving on to the daily chart below we can see Nifty has trend line and cradle support at 4460/70! Below that? Yes 4370 and here in the daily chart we now have the rising 20 periods MA residing there along with the trend lines to catch the falling Nifty. I personally feel till the ADX shows some strength, trading Nifty will be very frustrating for both the Bulls and the Bears. Tomorrow we have the Inflation Figures coming in the evening plus we start a long weekend, I doubt if anyone would trade aggressive and take home their position overnight. It might be a very volatile and choppy day. There are times when one should move on to trading other stocks and leave Nifty alone (it will really frustrate if it vacillates between 4450 and 4650) !!!

"Infinite money is available to a mind that is ready, willing, able, qualified and gives itself permission to earn and accept it."

Mark Victor Hansen

Monday, August 11, 2008

A Chop Suey Day! Nifty Recap For The Day!!!

A Chop Suey Day! Nifty opened with yet another gap up inline with the Asian markets. This of course was due to falling crude and a strong close in Dow on Friday. Today’s 5 minute chart (Left) was a trader’s nightmare; testing your patience! If you are the one who has successfully traded the Nifty today, then you are a pro and if not and wondering what happened then you are welcome to the world of lesser mortals (myself included). The hourly on the right suggests overhead immediate resistance at 4630/4652/4680 while the immediate support lays at 4595/70. In fact this support should now be used for trailing your longs. The daily chart below, has nothing much to offer. Our man ADX is sulking and not making things easy for Nifty. Without strength in trend there are only two possibilities either we are topping out or maybe it’s just the right time to catch a breather and consolidate. Because any up move from here sans consolidation would result in very tired Bulls, who could fall easy prey to the lurking Bears!!!

Sunday, August 10, 2008

A Lesson In Pattern Failure!

I am posting this chart just to illustrate, why conformation from Price is important and why we say that patterns are not infallible. The chart below is of TATAMOTORS (courtesy my friend Jigs!) and the pattern; Cup and Handle (CNH). This particular pattern is considered to be super strong bullish and always worth a trade; but to TRADE it, you must be patient and wait for a confirmed break of the horizontal resistance above. This delays the entry and probably eats into some of the gains but it ensures that you are on the right side of the trade! TATAMOTORS has yet again made a CNH pattern, a break above 450 and sustaining that would construe a valid breakout and get the pattern into play! If you are a chartist, then these are the charts you must keep and annotate, so you can use them in the future for reference. Once again this takes us back to the golden rule of trading use strict STOPS because the most bullish of patterns can also fail!

Weekend Views On Nifty!!!

We have a weekly chart above. Nifty managed to close just a bit below the 50% retracement (4542) of the last swing. Above that we have resistance at 4647 and then the 61.8% retracement at 4730, above that the bulls will use all their might to reach the pschycological barrier of 5000! The support like I said earlier was 4370 and now 4450/70 has been tried and tested so should hold.

Now a look at the daily chart below, after two shooting stars the bulls fought back with a hammer. The battle is on! A close above 4630 opens new doors for nifty. The immediate support for Nifty is at 4450/70. We might have the 20 and 50 period MA crossover at 4300 levels; this in future should be another important point of reckoning. The ADX is flat and sulking it needs to get up and start rising to sustain this positive bias in Nifty.

Finally we move on towards the hourly chart. We have HH and HL in place. We need to make another HH taking out 4615 and then make sure we hold the recent HL at 4464. This is important for the trend to continue. A LH and a HL now will only lead to choppiness, congestion a.k.a. a Triangle? We have a likely hood of making a cup and handle on the hourly; a break above 4650 should confirm it. This has a minimum target of 4850!

To sum up I think till our short term support at 4450/70 holds we are in the game. Any break and close below 4370 would change the whole scenario. Another point I would like to make is that now we will start seeing a lot of negative divergences in the making. Remember they are just a cautioning tool; the real confirmation would come from the Price, breaking an important trend line or a MA support. My last post where I whispered a wedge and a Wolfe stands firm. It’s just prolonged a wee bit. Anyway like my good friend Ilango commented SHOUT TILL PROVED OTHERWISE so that makes it INNOCENT TILL PROVEN GUILTY!!!

"Failure is a part of success. There is no such thing as a bed of roses all your life. But failure will never stand in the way of success if you learn from it."

Hank Aaron

Thursday, August 7, 2008

A Rising Wedge With A Wolfeeee???

I don’t have anything new to write about Nifty today other than what I have already written for the last two days. We still maintain the status quo. Just out of curiosity I am posting below the hourly chart of Nifty with a different perspective. We have a pair of HH and HL in place. If we break the HL (4503), one can take short position with a stop above 4580. Other wise the following chart is a study in Price Pattern. We have a rising wedge coupled with a bearish Wolfe Wave. The target of this WW is near about 4070! This of course is only possible if Price pierces through our supports of 4370 and 4250 like hot knife through butter!!! Nay I aint screaming Short but just presenting a view… alternate view!

Wednesday, August 6, 2008

Nifty Recap For The Day!!!

Nifty opened strong courtesy overnight bullishness in Dow and then of course strong cues from the Asian bourses. Today was profit booking day, like I have been commenting earlier time to take some money off the table. Very choppy intraday action, as one can see on the 5 min chart on the left. The hourly chart on the right has a new HH in place. Nothing much to comment today, the daily chart below shows a shooting star. Profit taking? Exhaustion perhaps! Interestingly Nifty has just closed in the vicinity of the long term sloping trend line. 4450/70 needs to be tested to cement further the up move and the oft repeated 4370 plays the pivotal role.

"It's choice - not chance - that determines your destiny."

Jean Nidetch

Hmmm the choice …… use STOPS!!!!

Tuesday, August 5, 2008

4370 Holds!!! Nifty Recap For The Day!!!

In my last two posts I have been saying 4370 is pivotal for the bulls to hold. Yesterday’s intraday action saw us forming a DB there and taking support. Today also we tested 4370 levels and took off! The chart on the left is a 5 min chart. Look at the congestion (shaded area) with it multiple tops. This was a short scalp trade only meant for nimble fingers. Once the support at 4370 was cemented, Nifty just took out these multiple tops along with the Stops placed there. There was a positive divergence in MACD Histogram; this was followed by a break in the trend line along with the break of the 20 period EMA. Once the congestion was taken out 4440 was a mere formality. The Hourly on the right also shows we have broken out of a triangle. The logical target of this move should be in the vicinity of 4725. But like I had mentioned in my Sundays post 4550/4647/ 4727 is likely to be the road map.

The chart above is the daily chart. We have kissed the sloping trend line from January highs. We are way above our 20 and 50 period MA’s which now are likely to provide support. Again I reiterate ADX is suggesting time to book profits and let the consolidation happen. Anybody who was long with Stops below 4370 can now trail with 4440 (conservative) or 4470 (aggressive).

"You cannot discover new oceans unless you have the courage to lose sight of the shore."

Origin Unknown

Monday, August 4, 2008

Nifty Recap For The Day!!!

Volatility marked today’s move. With no strong cues from the Asian markets we were a bit fickle minded ourselves too. The chart above on the left encapsules the intra day action on the 5 minute time frame. A cautious opening, and a failure to attain new highs. We made a DT (plus we had an ascending triangle which failed) and finally broke the rising trend line along with the 20 period EMA. This signal was corroborated by the negative divergence in the MACD lines and also noticeable was when the price made the first attempt at conquering the top the MACD Histogram had barely moved above the zero line signifying the bulls were just not strong enough. As I had mentioned in my post yesterday 4370 is important, well we made our double bottom there (a very good opportunity for trading). The hourly chart on the right has formed a triangle. A breakout of 4440 and 4350 (btw 4360/65 has both the trend line support and also that of the 20 period EMA) signals the next direction of Nifty, as indicated by the arrows. Above 4440 we have 4500 and 4550 to take care of. A break below 4350 would signal a retest of 4250.

The chart below is the daily chart. Off late with so many lines drawn on it, this looks a bit smudged. But no other choice as one needs to keep these clusters of trend lines for future reference. On the daily also, one can see a small symmetrical triangle. The problem with these triangles is that they are very notorious in their behaviour. You just never know which way it’s going to break till it breaks actually. Another thing noticeable is that the ADX is going quiet. My guess, maybe its time to consolidate for sometime.

"The greatest mistake you can make in life is continually fearing that you'll make one."

Elbert Hubbard

Sunday, August 3, 2008

Weekend Views On Nifty!!!

I am back, the break did me good! The problems with breaks are that you get a bit lazy to get back to work hence such a late post. Let’s view the charts of Nifty and see what’s in store for us next week. First we take on the weekly chart above. We have closed above the 38.2% retracement of point A to B. Any close below 4375 on weekly closing basis will mark the end of this pullback. On the other hand we have overhead resistance at 4550 levels, which is the 50% fib ratio plus along with the trend line resistance. This area is also the logical target of inverse H&S (shown below on the hourly charts), will discuss that later. Above 4550 we have 4647/4727 to take on.

Now let’s move to a timeframe lower; the daily chart shown below. In fact both the charts shown below are daily charts. The one on the left is just simple chart showing pivots. We have a HH and a HL. In simple terms this just means that the trend in question remains up if it takes out the previous HH and it will reverse if it takes out the recent HL. The chart on the right shows we have just closed below the trend line resistance but more importantly above the 50 period Moving Average. Just above this we have a cluster of horizontal resistances at 4450/70 and finally the 4500+ which will be a bone of contention between the bulls and the bears. Since that marks the penetration of the huge sloping trend line drawn from the January highs.

Finally we have come to the hourly chart and the inverse H&S I had mentioned earlier. The two vertical yellow lines marked are nothing but a way to show how the basic target of inverse H&S is computed. Though the logical target for this pattern on the hourly chart remains near 4550 we still have to face resistance near the trend line which incidentally falls at 4480 and 4500 (A round number resistance!). My view is that we are innocent till proven guilty! As long as we trade above 4370 we remain firmly in uptrend, below 4370 the all important 4250 comes into force!!!

Another important thing I wish to mention that this pullback has many a people announcing that we are back in BLACK. I just want to say one thing first put a question to yourself and ask “Are we really in a BEAR market?” If YES then you can’t just wish it away in 6 months. These vicious pullbacks are synonymous with Bear markets and should be used for quick swing trades. Another most important thing is to build your portfolio slowly by buying little into the FALLEN ANGELS, a term used by Elder to describe good shares with strong fundamentals, which have fallen out of favor and are now available REAL cheap.

"Dream as if you'll live forever. Live as if you'll die today."

James Dean