Wednesday, March 30, 2011

A strong positive breakout! Indeed can be Primary 3...

Nifty Daily

Nifty 240 mins

Nifty 60 mins

As seen daily chart, we see prices moved above the 2 std dev Bollinger Bands® turning the upper band along with price. This indicates a very strong trend which is up. We are now intermediate term bullish and we do not see any exhaustion so far on intermediate term basis.

Traders and investors have tendency to try and catch the turns. This has happened all the time when market was falling from 6300 levels to 5200. But we have been quite successful in trailing our stops rather than predicting when the minor down move happens. We will now not try to predict when a minor correction will happen but to use that correction to create a long position.

As we have shown on our alternate chart before, we can be in a primary degree 3rd wave and this can be just explosive wave where everyone waiting for pull back to enter and a meaningful correction never happens. Please understand markets have been moving on a rotational basis since many months now and this is what might happen again. So, we will rather stay in the trend using trailing stop loss then to be out of it waiting for corrections.

We do not want to reflect too much bias towards up move as the advance decline ratio is a concern as we still do not see major stocks participating in the rally. Small cap and Mid cap indices are still consolidating.

As seen on 60 mins chart, uptrend remains intact. 5600 – 5650 should now provide strong support. Any move below 5550 will signal danger sign to the strong rally up but that looks a low probable scenario.

Friday, March 25, 2011

The BIG consolidation phase continues!

Nifty Daily

Nifty 240 mins

Nifty 60 mins

Nifty has been consolidating in the triangle formation longer than we had expected. We thought that a breakout has happened below 5400 but just to be surprised as Nifty entered the consolidation zone again. This makes it imperative to analyse what other indicators and sub- indices are telling us.
In today’s report we are showing Daily, 240 mins and 60 mins chart of Nifty. Let us now analyse what other indicators are trying to tell us.
As seen on daily chart, we have plotted Bollinger Bands® along with price. The lower Bollinger Bands is acting as a good support during the down fall. Please note the lower Bollinger Bands was also falling along with prices but still providing the support. Everytime this level was touched prices consolidated. This confirms prices have been following 2 std deviation band very well. Lately we can see that even the Bollinger Bands has started moving sideways. Both the upper and lower channel of the band is moving sideways without any direction and the distance between the bands is reducing confirming that volatility has reduced largely on “daily basis”. We will now wait for this band to take a direction which will confirm the sideways action is complete. If prices break the upper channel and the upper line changes direction to upside it will confirm that the breakout has happened above and if prices move below the lower channel with lower channel turning down it will confirm downside breakout. Let us not pre-empt the breakout and wait for these bands to give a directional confirmation.
ADX – Average directional index as shown on lower part of daily chart shows current move is trending or consolidation. ADX has been constantly falling and moved below 15 which is an extreme reading. We now expect a strong directional move to begin soon and ADX to start rising again. This will second our analysis that the consolidation is over. For now, along with Bollinger Bands this indicator is still projecting a consolidation phase is on.
On 240 mins chart, we have adjusted the triangle trendline to take care of false breakout. RSI has reached the upper resistance level from where it has generally reversed. A decisive move of RSI above this 60 level will indicate positivity but we will not pre-empt unless that happens.
On 60 mins chart, we can see lot of gapping action. The colorful candles make it very visible. A gapping move up convinces traders that the trend has started up and vice-versa for downward moves. But to only get caught when prices reverses suddenly again after a day or 2 with a gap. We are not convinced to buy in into current gapping rally but would wait for our supporting indicators to provide confirmation of a breakout. MACD on 60 mins is also moving in triangle formation and should give a breakout confirmation whenever it happens.
In short, we have shown some 4 to 5 indicators and none confirms a breakout yet. Let us wait for these confirmations along with prices, unless someone wants to play the range bound strategy but it might be too late for that now.
We are closely monitoring the pulse of market and key levels for us lie at 5600 on upside and 5360 on downside. We are monitoring these levels along with supporting indicators for strong directional confirmation.

Monday, March 21, 2011

A Triangle Breakout!

Nifty 240 mins
Nifty 60 mins

Previously we have shown our prefered and alternate scenarios. At that time the pattern was not clear and also the direction that Indian markets will take was quite tricky. But in past few days movement we can see a triangle formation in Nifty along with many other stocks.
Markets finally gave breakdown below 5400 and traders who were playing the range on Indian markets would have been surprised by the move. Break of 5400 breaks many crucial support levels and trendlines as shown.

An important thing to observe is that the global markets were strong on Friday and we were the only one of the few markets globally that closed in red. This confirms that we are still moving independently without much relation to global movements.

We now expect selling pressure can accelerate and we might see 5200 levels before any meaningful bounce back. 5475 should now be kept as a crucial Risk management level and we should hold on to shorts as long as this level is not taken out on upside. We will re-evaluate the pattern if 5475 is broken on upside but this looks like a low probable scenario.

Sunday, March 13, 2011

Japan’s Tsunami: One of the biggest act of Natural Disaster in history of Japan!

Nikkei 225

Nikkei 225 Index:

Japan recorded the worse Earthquake ever in its history and this is no good signs from the nature. We believe each act of human on this planet is governed by nature and we do what we do in a rhythmic manner. Human beings as a whole in crowd cancel out random movements and what is left is a pure game of psychology in markets. We thought of showing one of the leading Japanese index – Nikkei 225 that shows how the economy as a whole has been doing in Japan. Japan’s equity markets closed at the day’s low when the terror struck its shores. The above chart shows that we were already due for a major correction to the least or resumption of a big downfall that started in 2007. The entire move down in 2007 – 2008 was impulsive 5 waves down and we corrected up in a complex W-X-Y correction as shown. We think the pattern is clear and we have started with a big down fall in Japanese market with recent natural disaster just acting as a trigger / catalyst to this fall. It has struck Japan at the time when markets were just about to turn down. Now this disaster will be blamed for the downfall in equity markets. It does has washed away millions of dollars’ worth of resources but we study history and know that over long term basis an act of disaster either natural or by human’s act actually stimulates the economy in a few years’ time.

Japan is what it is today due to the bombing on Hiroshima and Nagasaki during World War II. They fought back strongly after the terror and became one of the strongest economies of the world.

We remain strongly bullish over long term on Japan with some correction due over a medium term horizon. We are going to see this economy booming back to the way up to the levels it has not seen before.

Japan has a history with itself about their attitude towards disaster and they have all that it takes to come out of it. This disaster has created space for their developed economy and government can now spend on infrastructure ( Government was spending to stimulate the economy by the way of concreting the beds of sea shore since there was nothing to spend upon before) which will be most required once things settle down.

We strongly believe in Japanese people and in their attitude to fight back the disasters! They will come back strongly in a few years’ time when Japan will be completing its worse downfall that started in 1989 and overcoming the worst natural disaster that struck them!

Monday, March 7, 2011

Indian markets at crucial juncture!


Sensex: Alternate Possibility

This time the Budget day produced the swing in the opposite direction that is up which was a surprise to us. But prices did close near the opening which we were expecting that magnitude of swing on closing basis remains low. A strong rally on the follow-up day was broad based and this confirms that we are still in wave X and it is not over. If you remember we have said in our report couple of days back that “recharge your emotions for the tough times ahead” and this is what is happening when wave X is in progress.

Prices gapped up on Friday and moved very quickly above 5600 forming a top at 5608. It took Nifty entire day to close that gap and Indian markets ended flat on the last day of the week. Nifty currently lies at very crucial juncture and a rally from here back above 5600 will indicate more steam left before this leg up is complete and a move below 5470 will increase the odds that we might start next leg down. We would wait for market to give us a clear direction in next 2 to 3 days. We would keep this scenario as preferred and would look for market to top out and start next leg down.

For now, look for 5470 as support and 5600 as resistance level and the way prices move above or below these levels will give us further path ahead!

We are presenting an alternative count as seen on above Sensex chart which is very bullish but we would keep that as an alternative.

Reason for an Alternative:

As seen on the Sensex Daily chart above, we are nearing the Time cycle low. This indicates we should be turning up soon if the current Time cycle is still valid. Also the wave count shows that we have moved down in 3 waves and that can mark an end to the corrective down move. RSI as shown is exhibiting strong recovery even when prices failed to move up significantly. The relative strong move of RSI compared to Sensex indicates positivity.

Nifty Dividend Yield:

Also based on the Nifty Dividend Yield chart I forwarded, we can see that the dividend yields currently are lying at the levels which were seen during the start of wave 3 of 3 of primary degree in 2005. This was the level which was also seen before start of exponential wave primary 5 in 2006 and 3rd of 5th in 2007. If this relation holds we might be on a verge to start a strong next leg up in the form of a 3rd wave of primary degree again!

We remain cautious of this alternate possibility with our preferred count as shown on Nifty 60 mins chart. The nature of price move in next week will be crucial to observe and how prices move near support and resistance levels will give us further indication if we need to adopt the alternate possibility as preferred.