It's time for "limited loss' or "unlimited profit"

The main pillar of technical trading is "Make trend your friend until it bends at the end". Most of us, students of technical analysis are aware of this, but very few act accordingly. Those who can, are successful in trading business. It sounds easy and more difficult to follow. 

When trend reversal occurs, it gives Options traders a wonderful opportunity. Returns more than 300 or 400% can be generated at that juncture. Trend reversals are not easy to spot at an early stage. Formulating trading strategy is much more difficult. One has to draw detailed road-map of the probable movement. As long as market behaves according to that road-map, trader is making money. If market moves otherwise, the trader squares off the position.

Indian stock market, as per our opinion, has a high chance of trend reversal. If that happens, what could be the target? Where should the stops be placed? We will try to figure out these points in this article.

Why this recent high of 10137 could be a potential top of Nifty? That needs a long and detailed discussion and thus beyond the scope of this article. We will discuss the technical possibilities at this point of time. 

Last leg of upmove was rapid and parabolic. Volume was lower in this run to 10150 from 9450. This is a cause of concern. After all, volume is like 'fuel'. You cannot drive your car at high speed for a considerable period of time if the fuel indicator is showing lower readings. That could be the case of Nifty, especially when the benchmark rose almost 7.5% in just 23 trading sessions . We observed same volume scenario in Bank Nifty. The sectorial index want up to 25200 from 23000 with contracting volume. A 9.5% run in same 23 trading sessions.  

Nifty fell 4.4% from the top to make a swing low at 9685. Volume was on higher side and thus it was a alarming fall in 8 reading sessions. Thereafter we saw a bounce back till 9947. Last Friday's (18th August, 2017) low was 9783 and closing was 9837. Going forward, unless Nifty crosses and stabilizes above 9950, weakness will continue.

Decisive break below 9777 may trigger another 100 points fall towards the earlier low 9685. If that level is breached, panic may set in and Nifty may come down to as low as 9450-9500. 

Fall in Bank Nifty was higher at 5.4% before bounce back came. It is now 4.7% down from all time high. Corresponding figure for Nifty is 3%. this under-performance of Bank Nifty strengths our assumption of a probable trend reversal.

Break below 23800 may lead to 23000 and thereafter panic will start. On the other hand crossover and stay above 24550 will be good news for bulls.

We believe that upside of the market is limited and risk reward ratio likely to be favourable on initiating shorts. Probably this is the time for buying PUT. A well known myth of Options trading goes like "limited loss with big profit potential" could be appropriate in this juncture. 

Interested readers may please call 91-9830199187 for trade setup and the probable movement pattern.    


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.  

Pharma: Out of ITU

Pharma sector has been under performing the market for last couple of years. NSE Pharma Index registered all time high of 14020 on 7th April, 2015 following a dream run. It was investors' paradise. However large players decided to take out money from the board which resulted a steep decline in most pharma stocks. NSE pharma index hit a low of 8634 on May 29, 2017; a staggering 38% fall at time when Nifty advanced 11%. The patient was in Intensive Therapy Unit or ITU. 

Price then started moving northwards. NSE pharma index is now trading at 10052, a 16% rally in 3 weeks. this is excellent performance in any standard. Nifty has gained 3% at the same period. Almost two months of outpace after two years of distress. The patient is now transferred to general bed. Some value buying must have taken place. Now there is a chance of discharge. Presently pharma stocks should put in the watch-list.

Let us check the chart of NSE Pharma Index.

Individual stocks are showing strength. It is quite natural since index moves solely on the performance of the stock that constitute the index. We will check technicals of four pharma stocks that contribute 65% of pharma index.

Sun Pharma bears highest weightage in tune of  27% in pharma index. Though the stock has gained 16% from the low, no reversal formation in visible in chart. The stock is moving in a weekly downward channel with upper band around 670.

Yet to see sunshine

Dr. Reddy has second highest weightage of 15% in pharma index. The stock has formed an inverted head and shoulder pattern subject to breakout above 2780-2800 zone.

Cipla has also formed bullish reversal formation with a tricky breakout level. 555 and 572 are two extremely important levels. Last close was 566.  

Weightage 12.5%

Last but not the least, we turn our attention to Lupin. The stock is in process of forming a bullish reversal pattern. Confirmation will come on decisive crossover above 1200.

11% weightage

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: Taking a pause

Thew are some technical evidences in Nifty chart, which are worth noticing. the index is moving in 9550-9700 range for last twenty trading sessions. This type of movement after a prolong upmove generally suggests tiredness, especially when Nifty is at all time high.

Average movement has been only 65-70 points in this last twenty trading sessions A surprising finding is that 'open to close' is higher in only six trading session while fourteen trading session witnessed lower 'open to close'. Volume were lower in up days and down days witnessed relatively higher volume.

The attached chart indicated further weakness whenever Nifty breaks 9530, where we have support of a moving average. Nifty did not break this moving average in this ongoing rally.

On the contrary, Nifty could bounce back from these levels (9530-9550). Low range, as happening in last one month, indicates big move in on the way. The chart of Nifty is given below.

State Bank has formed a bearish reversal pattern subject to decisive break and close below 280. 

As per the technical evidences SBI could reverse from 278-280 zone also. Similarly 9530-9550 could be the reversal point for Nifty. Traders should always remember a thumb rule which states, 'Trade on confirmation, not on anticipation'.

And if bulls regain control in next few days, then we may look at Vedanta. It is in process of forming a bullish reversal formation. Decisive crossover and stay above 248-250 may fuel a 10% rally. Please find the chart below.  

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.  

Jaguar: Prepairing for a run

Jaguar sales is supplying oxygen to Tata motors for quite some time. Last quarterly result was better than the expectation. Technical setup suggests that there could be a upmove in the stock. 482 is the level to look for. Close above this level with high volume will be taken as breakout.

Chart suggest that the stock has a long way to go then. Please find below the chart.

 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: Next few sessions are vital

Nifty, we all know, is in uptrend on both long term & medium term uptrend. Currently bulls are suffering due to short term down trend. The chart of Nifty is far from revealing the ongoing carnage in mid cap and some select large cap stocks.

A common problem for regular trader is to come out with a suitable strategy in this type of market. The problem for Option traders is even worse. What are the technical possibilities here?

Well there are technical evidences for both sides. Hourly chart of Nifty suggests more trouble for bulls as long as Nifty trades below 9370, while crossover and stay above 9450 would be taken as short term uptrend.  

Daily chart of Nifty is posing a distant possibility of trend reversal subject to lot of ifs and buts. Whatever may be the case, next few trading session are of paramount importance.

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.  

PSU Banks: Out of the woods ....Part II

We continue our coverage on PSU Banks. PSU Index yet to cross crucial 3600-3700 level, but some PSU Banks are showing strength. SBI is range bound between 280 and 288 in last few days. If it manages to cross and stay above 292-295 supply zone, we may see some upward movement. Eventually PSU Bank Index will cross 3600-3700 as SBI enjoys 65% weightage in the Index.

We will examine technical setup for three relatively small PSU Banks namely Oriental Bank, Syndicate Bank and Andhra Bank. All three stocks are about to breakout from a bullish reversal formation.

Remember the oil Chinese proverb? One picture is worth a thousand words. Please find below three pictures (charts). Hope this will be equivalent to three thousand words.

Chart courtesy. in.investing.com

 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.  

PSU Banks: Out of the woods

We have seen a clear distinct price differences between private and state owned banks. Bank Nifty is trading 4% above the 2015 high while Nifty PSU Bank Index is almost 20% lower than the high registered at same time. It is evident that out performance of Bank Nifty is due to phenomenal run of some private banks. 

This could be the time for PSU Banks to cover some of the lost ground. Chart of Nifty PSU Bank Index is suggesting that there could be some fireworks. Obviously that will come on valid breakout.

We will discuss current technical scenario of Nifty PSU Bank and some state owned banks. Nifty PSU Bank is now trading near to its breakout level 3600. Close above 3600 on weekly basis, if it happens, will occur after May 2015. Valid breakout may take PSU Banks much higher and there could be out performance of these banks comparing to private ones. 

According to theory, no formation, be it bullish or bearish, does not get complete until and unless valid breakout happens. 

Among individual banks, charts of State Bank of India, (SBI), Punjab National Bank (PNB) and Canara Bank are worth noticing. Please find the charts below,

292 is the level to watch for. Weekly close above this level will be considered bullish. Similarly, the level of 322 is important for Canara Bank. 

Technical evidences of PNB is slightly different. Here we have 165-170 supply zone. If PNB manages to close above this level on weekly basis, we can expect some fireworks.

All the stock discussed above are potential breakout candidate. We will keep the stocks in watch-list.

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.  

Start of Bengali new year

This Monday, 17.04.17 is the first trading day of Bengali new year 1424. ......শুভ নববর্ষ .....

Last week witnessed lacklustre trading with mild bearish note. However software and metal stocks saw handsome fall. If we mention 4% fall in CNX Metal Index as profit booking, then the fall by same degree in CNX IT must be categorized as bear hammering. Bears should be thankful to yet another disappointing quarterly numbers from Infosys. Please find below last week's performance of major indices.











Bank Nifty has improved its position. In fact, Bank Nifty has been outperforming Nifty for last couple of years. Last week, no new development has taken place in this index. We hence focus on Nifty. There are certain technical evidences that are worth looking.

Nifty is in a strong uptrend for last 15 months. There has been mild corrections and last week was no exception. Now the question is whether this turns to be a major correction. Let us examine the probabilities.

Nifty has broken and closed below a two months old trendline. Till now this does not bear major significance as Nifty Future is still holding the trendline of the same period. In fact last close of Nifty Future is very near to the trendline support. Then we turn our attention to moving average.

Nifty never touched or closed below 22 EMA after crossing the same in last 15 months. Currently 22 EMA stands at 9130, just 20 points below the last close. If Nifty breaks 9130 decisively, then it may travel towards 9000.

Decisive break and close below 9000 will terminate this ongoing uptrend, since this is the last swing bottom. That should not be mistaken as downtrend. We need further confirmation for that.

Now whether Nifty dampens Bank Nifty or Bank Nifty uplifts Nifty will be clarified in next couple of weeks. Please remember divergence between Nifty and Bank Nifty can not last long. This we have seen in last several years. The mentioned divergence is against the overall logic of Indian stock market.  

Please find below the chart of Nifty.

Now after main course, its time for desserts. Sweets are integral part of Bengali new year celebration. Here we cover two stocks, both from ill-famed real estate sector.

First one is Prestige Estate. The stock is in verge of a breakout as per weekly bar chart. It is now attempting to surpass 225-235 supply zone. However, as per weekly line chart the stock is well above the breakout level of 218. Volume was supportive.

 

Prestige Estate never had the reputation of burning investors. Our second stock under consideration unfortunately has a history of doing so. We are talking about India Bulls Real Estate.

After making all time high of 850 on January 2008, India Bulls Real Estate sank to 81 in just 10 months. Next year, the stock floated till 300 only to plunge at 40 in 2011. The stock then started to consolidate between 40 and 110. Last week, the stock closed at 106, pretty near to the higher end of the range. As per monthly line chart, monthly close above 103 will be considered as breakout.

Technically speaking  crossover and stay above 110 may be a sign of re-rating. Recent buyback scheme seems behind the current positive sentiment. We do not know whether this sweet dish will turn sour but the stock is worth buying above 110 with appropriate stop loss.

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. 

TCS: Soft price for software giant

Life is not that good for the software stocks following US decision on H1B visa. Infosys made a good reversal formation but price returned from the breakout level. The breakout level coincided with 200 DMA. Please refer to our earlier post named Infosys: Good times ahead.

Let us now focus on India's largest software company, Tata Consultancy Services or TCS. Here also, like Infosys, the crucial level coincides with 200 DMA. Unlike Infosys, TCS has formed bearish pattern. According to the pattern, TCS may fall to 2300 or even 2200 if it breaks and stays below 2390. The break needs to be accompanied by expanding volume.

Please note TCS will announce its Q4 nos on 18th April while Q4 results of Infosys will be out on 13th April.

The chart of TCS is given below.

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.

Larsen & Toubro: Breakout!

Larsen & Toubro (L&T) is one of the few companies that maintains highest level of quality and integrity. This is a stock to own. L&T has been always favoured by the quality investors. Somehow, the stock was under performing the benchmark index for last 12 months. L&T is trading 12% below its all time high of 1893 at time when Nifty is trading well above the earlier all time high, which was registered 24 months back.

Now based on current technical evidences, L&T may well recover its lost ground. On 03.04.17, the stock has broken out from a bullish reversal pattern. In fact, two patterns are clearly visible on weekly chart. One is 'Cup & Handle' and the other is 'Ascending Triangle'. Both the patterns have same breakout level of 1615. The closes at 1661 on 03.04.17 with expanding volume. This being Monday, volume in attached weekly chart is misleading. We have still three trading days left in this week.

So whenever L&T closes above 1620 on weekly basis, it is bullish and will remain so as long as stays above this level.

The bullish reversal patterns are not clearly visible in daily chart, but they exist. Latest closing of 1661 is, in fact, 2.5 higher than the breakout level. So bullishness is in the air. The chart is given below...

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. 

Infosys: good times ahead

All time high of Infosys till now is 1280, registered on June, 2016. The high occurred during formation of a reliable bearish reversal pattern namely 'Head & Shoulder'. Price moved southwards following a disappointing quarterly result from this software major. That was an excellent trading opportunity and we shared our bearish view in this blog by the articles Infosys.....downward journey and Converting analysis into a profitable trade. 

Infosys enjoyed a 8.36% weightage in nifty at that point of time, that has reduced substantially to 6.16% now. We have another reliable reversal formation in Infosys. This time it is bullish reversal and commonly known as 'Double bottom'. Mr. Thomas N. Bulkowski has referred this type of double bottom as 'Eve & Eve bottom'. And what he mentions as 'Surprise Findings'  per his surprise findings,  is that this pattern performs best breakout is near the yearly low. He also finds that heavier volume on right bottom do well. Interested readers may please go through his book 'Encyclopedia of Chart Patterns, 2nd Edition' for further details.

The discussed pattern of Infosys satisfies these two conditions and thus enhance the risk reward ratio for the traders who intends to initiate trade in Infosys based on this pattern. As per theory confirmation will come when price closes above the highest high between the two bottoms. This is the breakout level.

Breakout level for the ongoing double bottom formation of Infosys is at 1040. Today at 17.03.2017, the stock closed at the same level. 200 DMA, a moving average that carries tremendous significance to the chartist, is at 1042. Confluence of these two technical evidences may make a chartist overwhelmed but trading is much tougher job. Strategy formation and initial trade setup deserve a lot of thinking and beyond the scope of this article.  

The chart is given below. However, the pattern suggests a price objective of 1179. 

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. 

BHEL: Uptrend emerging

BHEL is in a steady downtrend since 2010 and that is easily visible in monthly charts. From 2010 high of 538, it came down to 100 in 2013. Then it made a high of 300 in 2013. Bears again stepped in and price plummeted to 90 in February, 2016. 

Price thereafter went to 163 followed by a fall till 116, that happened in December 2016. Today on 15th March, 2017, price crossed earlier high of 163 and thus creating a 1-2-3 pattern in weekly chart. Please take a look at the chart for ready reference.

This is supposed to be establishment of an uptrend. Higher top and higher bottom is place. As long as price is maintained above 163, BHEL is expected to touch 200 DMA, which is somewhere around 183. Next hurdle is at 220. 

Whatever may be the case, current technical scenario of BHEL is favouring the bulls.

One of the Navarantna trying to make a comeback

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.