Axis Bank - Advance Indicator

Axis Bank is a high beta stock. The stock has been outperforming the market for last 2-3 years. It is one of the favourite stocks of the institutional investors and provides good trading opportunity for traders also. The stock witnessed a spectacular run in last four and half months. Price increased 53% in this period, which is fabulous in any parameter.   

The scenario is quite different in last 3-4 trading sessions. Axis Bank fell almost 7% in this period comparing to fall of 2.6% and 1% in Bank Nifty and Nifty respectively. Whether this weakness is stock specific or warning sign for the overall market, we do not know. Only time has that answer BUT the chart of Axis Bank deserves a closer look on both academic and trading perspective. The chart is given below.

It is evident from the chart that today’s low of 535 is a crucial sp for Axis Bank. Price may bounce back from here but need to cross 550-552 for strength. Decisive break below 535 will signal further weakness and retesting of earlier low 492 cannot be ruled out in that case.

As of now it seems that we have the following probabilities.

1. This is a shallow correction. Price will eventually cross the earlier high 577.
2. There could be a mild bounce back till 550-552 zone and then price breaks 535 to test 492.
3. Price does not bounce back, breaks 535 and heads towards 492.
4. None of the above.

The last option is given to make this article ‘politically correct’. In our opinion, it has to be among the first three scenarios with more chance of a downward breakdown. In any case, 535 is the key level for Axis Bank. We will keep close eye on this stock.

Disclaimer - The views here expressed and the charts shared are strictly for educational purpose and not a guideline for buy or sell. The author will not be responsible for any loss, that may occur.

Converting analysis into a profitable trade

Please read the entire document patiently. It is not an analysis but much more important than that.

On 15th June, 2016 Infosys came out with disappointing results, the stock closed at 1072, 100 points down from the previous close. We did post a near term bearish outlook of this stock two weeks ago. The article was named Infosys.....downward journey. BUT could we convert the analysis into a profitable trade?

If the answer is yes, then we have learnt the art of trading. If not, then what went wrong?

We will discuss what could be the thought process for converting this into a profitable trade.

Technical Analysis is only the first step towards successful trading. There are lots of extraordinary chartists around us, where as good traders are hard to find. Designing a strategy with proper risk management is the key. Because at end of the day "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." This is probably the most important consideration in trading as said by George Soros, one of the greatest traders of all time.

We will take this example of Infosys and discuss what could be the thought process for converting this into a profitable trade.

We found a bearish head and shoulder formation in daily line chart of Infosys. After completing the formation the stock climbed above the neckline to raise question about this pattern. Stops were triggered 2-3 times. This gave some issues to the people those are sceptical about Technical Analysis.

But a quintessential technical analyst knows that there was a distribution in Infosys, which led to form this bearish pattern. They also know that unless price crosses right shoulder with expanding volume, risk of falling persists.

Moreover, when your own money is at risk, the theory is not sufficient. Professional traders do not rely on Technical Analysis alone. They know a stock like Infosys cannot fall by 8-10%, only because it has formed a head and shoulder. This may sound like a challenge to the theory of Technical Analysis, which assumes everything is reflected in price but things do not happen that way.

Technical Analysis is a subject of probability. Pattern failure is part of the theory. Most of the time, a news triggers the expected movement after completing a pattern.

In this case of Infosys, professional traders were looking for news that may trigger the fall. This was important because Nifty did not show any sign of weakness, though it was rising with diminishing volume. Looking for news in a bearish looking stock was not that necessary in a bear market. But this was the other way around.

So this head and shoulder can meet its target on back of stock specific news. What could be that news in this earning session? Answer was easy; it has to be the quarterly result of Infosys.  

On 15th July 2016, professionals were ready to short Infosys below 1175. The stock was hovering around 1180-1185 just before the results. Immediately after the result, it broke 1175 and fell 100 points within a very short span. Please find below price of Infosys on that particular day.  

	Open	High	Low	Close	Change
Infosys...Cash	1189.50	1189.90	1052	1072.55	-9.67%
Infosys…Future	1190	1193.90	1062.20	1076.85	-9.6%
1140 Put	18.90	83	12.95	66.80	205%
1120 Put	13.90	66.05	9.25	50.05	209%

Lot of money could be made. Unfortunately people focus on Analysis and ignore strategy formulation. In our opinion 80% importance should be given on the strategy formulation and risk management. 20% focus should be paid on Analysis. To be precise without strategy formulation and risk management, it is impossible to be a professional trader.

So now onward, please pay attention towards strategy formulation and risk management. 

Disclaimer - The views here expressed and the charts shared are strictly for educational purpose and not a guideline for buy or sell. The author will not be responsible for any loss, that may occur.

Nifty and Bank Nifty Future - In singing mood

In 1991, a British rock band Queen released an album Innuendo which featured a song 'The show must go on'. Later in 2016, this number was sung by Celine Dion. The song was a huge hit and ruled charts for several days. Indian and US market seems to have taken cue from this song and keeps on singing 'The rally must go on'.

Both the markets are well above the pre-Brexit levels and still no sign of weakness. To us, the traders, price is supreme. One may or may not participate in this rally but cannot deny the fact.

In India, Nifty Future and Bank Nifty Future has been moving in an upward channel for quite some time. Both the indices broke lower trendline of the channel on Brexit day panic only to recover same day to close within the channel.Thereafter, rally keeps on continuing and now we are near the higher end of the channel. Volume was throughout on the lower side excepting 1-2 days.

Formations are now looking interesting to us, those who study charts. Please find below the charts of Nifty Future and Bank Nifty Future.

Technical setup indicates interesting time ahead

Bank Nifty is much more volatile than Nifty 

Disclaimer - The views here expressed and the charts shared are strictly for educational purpose and not guideline for buy or sell. The author will not be responsible for any loss, that may occur.  




       

Nifty - is it a trap!

On 24,06,16, Indian market opened big gap down following the news that Britain has decided to leave EU. Sell-off continued further and withing two hours of trading Nifty was down by about 350 points supported by excessive volume. However, surprising almost everyone, market started rising thereafter and recovered more than 150 points to close at 8087 comparing to previous day's close of 8282 and thus registering a fall of  195 points or 2.3%.

Rise in Nifty continued next Monday and Tuesday and Wednesday and in next three trading sessions. We will analyse the chart of Nifty Future. Trading pattern were same in last four trading sessions. Nifty opens higher and trades in a small range to close higher than the opening price. Volume continues to shrink. Only on 30th June expanding volume was registered.

Nifty has been moving in an upward channel from first week on March'16. We would study price volume relationship in three different phases of this channel. The phases are marked by 'a', 'b' and 'c'.
Let us discuss three phases.

Phase 'a'

In this phase Nifty Future started rising after hitting a low of 7722 on 24th May'16 and recorded a high of 8299 on 8th June'16, a rise of 577 points or 7.5% in 12 trading sessions. Out of this 577 points, price advanced 460 points in first four trading sessions and thereafter price started moving sideways only to register 117 points advancement in Nifty in next eight trading sessions. Volume dried up in these eight days. And in first four days, volume was average in two days and another two days saw high volume. We were satisfied with the volume characteristics in phase 'a'.

Dried up volume in last eight days in this phase told us to be cautious on higher levels and suggested that there could be price correction shortly. Exactly that happened and we mark the next phase as phase 'b'.


Phase 'b'

Phase 'b' price came to to 8282 from 8291. Nifty was sideways in this eleven trading sessions i.e. from 9th June'16 to 23rd June'16. On 14th June price fell to 8076, which was the lowest point in this phase. Among these eleven trading sessions price fell, rise and remain sideways for four, three and four trading sessions respectively, We notice that volume were higher in down days and much lower in up days. This was a warning of a probable correction.

The correction came in a form of panic after Brexit vote. We have mentioned how price moved on 24th June'16 in the first para of this report. Then we move to phase 'c', which is the current market scenario.

Phase 'c'

We are in this phase now. Price moved up for six consecutive days. Volume keeps on shrinking except for one day. This has been already mentioned in earlier part of this report.



This ongoing rally was unexpected, especially when one reads the opinion of the legendary trader George Soros. Then is this rally may turn to be to be a trap.  

Technically speaking. we have to be cautious on higher levels and will avoid taking long positions as long as Nifty rises with lesser volume.

NO...we cannot initiate short until price confirmation comes on down side. Currently wait and watch policy should be adopted with an negative bias in mind.
 
In a nutshell, we are not comfortable with this rally. Only rise with expanding volume can give us comfort and nothing else. Meanwhile, as mentioned earlier, we are waiting for price confirmation on lower side.

To conclude, we would like to remind our readers a famous quote by the prominent economist John Maynard Keynes - “The market can stay irrational longer than you can stay solvent.”



Disclaimer - The views here expressed and the charts shared are strictly for educational purpose and not guideline for buy or sell. The author will not be responsible for any loss, that may occur.