Thursday, September 25, 2014

Impact on equity markets: Supreme Court verdict on Coal blocks!

The Supreme Court on Wednesday cancelled 214 of the 218 coal blocks allocated by the successive governments since 1993 and gave the companies awarded coal licenses six months to wind up their operations.
Yesterday was an eventful day for the markets and Nifty reacted lower as soon as the announcement came out. However, later both Nifty and Sensex entered managed to enter into green territory even when the news was perceived as bad for majority of PSU Banks and Power stocks.
A person simply looking at the index might be surprised to see a positive tick from lower levels which do not seems logical at the face of it. The other argument can be contribution from defensive stocks that helped index to end higher despite the negative news but trust me the news would have given too much weightage to the event if Nifty would have ended deep in the red. Case in point is news will change based on the market direction and not the other way around.
Equity markets are discounting the future and are thriving to see ahead whereas the news or events can be a part of past actions. Stocks of companies most impacted have already been falling well before the ruling of Supreme Court. Events can produce short term spikes or movement that will last for few minutes, few hours or few days but eventually the major trend of the market resumes.
So how to trade using objective techniques and which techniques have proven its validity despite all the news and events?
Now look at the below chart of Nifty with Path shown:
Nifty daily chart as on 4th September 2014:
Blue lines on above chart show the direction of trend over next few weeks.
Now look at the below chart and see what has happened as on 24th September 2014
The above chart clearly reflects the movement in synchronization with the path ahead shown in first chart. It also reflects the simple techniques of Channels, Moving averages, RSI combined with some knowledge of Elliott waves. Don’t you think if one knows the path of the trend not necessarily the exact levels it will save you lot of mental and emotional energy when Nifty moved by more than 100 points on upside but then to reverse back down another day with huge volatility?
The above path is not a hypothetical example but was published in actual research report on 5thSeptember 2014 to our subscribers. Even when Supreme Court announced its verdict on Coal blocks in the morning itself following was published in the report yesterday “the trend for now is sideways to negative but prices can manage to close above 8000 ……. On downside 7940 will be very crucial and only a move above 8180 will resume the uptrend. Let us see if prices continue to adhere to the path first shown on 5th September as it has obliged us so far!”
After the verdict, Nifty made a low near 7950 levels and finally closed at 8002 yesterday itself!!!
In a nutshell, it is better to use objective techniques mentioned above than to rely on news outcome for taking trading or investment decisions.Subscribe NOW to “The Financial Waves short term update” and see what we expect from here on.For subscription options simply visit and we will deliver reports to your mailbox on daily basis.
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