Tuesday, December 21, 2010

Bullish view on Nifty and The Banking Sector!

Nifty 15 mins

We have been mentioning the importance of 5950 levels since past few days now. Nifty action in last 2 days again proved the importance of this level. On December 16th Nifty made a high of 5956 and closed the shorter trading week at 5942. Nifty broke out of downward corrective channel (shown in red) in second half of last trading day of the week and moved up impulsively.

On very short term basis we do not rule out the pull back till 5920 – 5925 levels before Nifty finally break above 5950 impulsively. We think Nifty is now in a (i)-(ii), i-ii mode and should now show a 3rd wave rally up which will be very steep. We might be early in making such markings before price confirmation but the 3rd wave rally will not give us the opportunity to show it before it happens and it will take not more than couple of days for steep rally. The rally in last 2 days in stocks like Infosys, TCS, Tatamotors, etc is perfect example of how 3rd wave rally works. We would rather be early than to miss the best of the rally that looks probable now.

We remain strongly bullish on Nifty now as long as 5850 level is intact. Any move below this level will make us negative since the entire move up will then be only 3 wave but this looks to be low probable scenario as of now. A move above 6000 will strongly confirm our bullish view on Nifty.

Bank Nifty

Bank Nifty 60 mins

The Banking sector has been falling for quite sometime. We thought of revisiting this index and the vital Banking stocks to understand the overall trend of this interest sensitive sector. We have analyzed the Bank index and key stocks like SBI, ICICI, PNB and IDBI banks to understand if we are in for further fall or we can expect an impulsive move up with very appealing Risk Reward ratio.

Looking at the long term Daily chart above, we can see that we have probably completed wave (iv) of 3 with strong support of the lower trendline of blue channel. This makes the case that the multi-weeks correction shall be over in this sector for now. Also we can see alternative guideline as mentioned in Elliott wave principle. The 2nd wave and 4th wave correction alternates between Flat and Zig-Zag correction respectively.

Analyzing the short term chart on 60 mins, we can see prices have been moving within the bigger blue corrective channel. Prices broke out of the downward sloping red channel and took support on the upper trendline of the channel as seen on the chart. An upside break of 11650 level will provide first minor positive confirmation that we might probably have bottomed out on Banking index and sector as a whole with favorable wave counts as shown above. Crucial support level now lies at 11200 and a break here would lead to steep selloff across the sector.

Banking Stocks

Banking Stocks 120 mins

Banking stocks at a Glance: SBI, ICICI, PNB, IDBI

Daily Chart: From the glance of the daily charts of the Banking stocks we can easily make out that each of these stocks are lying very close the long term support upward sloping trendline from March 2009. We have shown the crucial levels on the charts for SBI, ICICI, PNB and IDBI stocks and the long term Elliott wave counting. It is sometime imperative for us to evaluate the long term chart patterns in order to give us the direction of the short term trends. Banking stocks as a whole have been the weakest sector after real estate in past couple of weeks. The move down on SBI and ICICI Bank looked impulsive whereas appeared corrective on PNB and IDBI bank. Looking at the long term chart we think the entire move down even on SBI and ICICI should only be a 3 wave structure since we still have upward wave 5 pending.

SBI and PNB have been moving excellently within the channel formed and the wave counts are very clear. On long term basis we expect prices to bottom out soon on the banking stocks and start next leg up. This view point is valid as long as prices do not break the lower trendline of the channel shown on all the charts and remain above the crucial levels marked on the charts. Also all the stocks lie very close to 200 days Moving average just below the trendline support levels.

On short term basis as shown on 120 mins charts we have shown the crucial support and resistance levels. A break of these levels on either of the charts will indicate a strong trend to unfold in that direction. As we said long term charts provide direction for short term trends we are positively biased now on the Banking stocks as a whole with very appealing Risk Reward ratio. The Risk of taking a long position is very less as compared to the Reward that we can expect.

From 120 mins chart we can observe that PNB is “relatively” the strongest among the batch of 4 stocks where PNB made a higher low when all other stocks were making lower lows. Also PNB tend to bounce back more than the other stocks on upside after a down move. Followed by PNB, IDBI is the next relatively better stock. Both of these stock lie close to their 50 period Moving averages whereas both ICICI Bank and SBI are far away from their 50 period MA. IDBI also has given an upside breakout of the downward sloping trendline and PNB lying close to its downward sloping line.

SBI is the weakest among the sector but is showing a very strong positive divergence on 120 mins chart. This does not consider it to be ideal candidate for initiating a long position but just indicating that this sector as a whole is bottoming out.

To conclude: The Banking sector as a whole is down but should be bottoming out near current levels. A break of crucial levels shown on Daily and 120 mins chart will result into multi weeks fall but that looks to be lower probability scenario now. We are bullish as long as these levels are maintained and the current structure offers the best Risk Reward ratio in favor of an upmove. We do not rule out the possibility that the down move in banking sector is just wave 3 of bigger correction but this looks low probability scenario and if we are correct on upside the Reward will largely overwhelm the Risk present currently.

Sunday, December 12, 2010

Crucial levels to watch!

Sensex Daily

Nifty 15 mins
Sensex moved down impulsively on 9th loosing almost 500 points in a single day. It was a complete capitulation with most of the indices in red
The number of advancing to declining stocks was extremely low with hardly any stocks in green. BSE Smallcap and MidCap lost as much as 5% in a single day
All these events suggest that the downfall shall continue further. A steep rally back on 10th might convince many that the bottom is in place again but a close look at 15 mins chart reveal that we might have corrected up in only 3 waves till now as seen on intraday charts.
After analyzing Nifty on 15 mins chart we can very clearly see 5 waves down and 3 waves up till now. This just shows how amazing Elliott patterns work even on time scale of as small as 15 mins.
Nifty bounced back on December 10th and retraced exactly 38.2% at 5850. The bounce back looks almost complete with just one smaller move up pending but we should wait for price confirmation. A move below 5800 - 5780 will provide first confirmation that the down move has started again on short term basis. For medium term, wait for 5720 to be taken out for strong confirmation of negative trend.
Any move above 5950 that marks 61.8% retracement level will increase the odds that the downward trend is in danger. As long as 5950 is not taken out on upside we are bearish. There are couple of other probable scenarios to count the current wave patterns that are bullish but the chances of those working out is less. We will adopt the alternate wave counts once 5950 – 5970 levels are broken on upside. Next support zone is now at 5550 level after 5720 is broken on Nifty.

Saturday, December 4, 2010

Sensex - Turn of Events and Time Cycles at work!

We mentioned 19600 as the key level for Sensex for an upward correction. Prices moved above this level very easily and with good momentum but BSE smallcap index is still looking vulnerable and the strength does not look that strong
3.25 months Time Cycles that we mentioned last time looks to be still valid and taking Sensex higher
It is very tricky to label the down move from 21100 top to the bottom of 18950 as a clear impulsive or a corrective structure
There are couple of equally probable scenarios right now and we do not want to pick up any one of those as our preferred scenarios. The right hand bottom of chart shows the alternative bullish counts for Sensex that are equally probable at this point of time
If the upmove rally would have exhibited a corrective structure and would have shown slowdown near 19600 levels we would have been biased towards the downside but the structure of rally forces us to evaluate the bullish alternatives
A move below 19400 will confirm that the rally from 18950 was only corrective in the form of wave B and the downward trend has resumed where as a more deeper rally above 20550 will confirm that the entire down move was only corrective and we are headed for new life time highs. Time cycles are confirming this bullish alternatives and move further above 50 days Moving average will slowly raise the odds in favor of an uptrend
The entire downward move resulted in exposing of Housing Scam and from Socionomics perspective such events are bullish for the markets. Satyam scam formed wave 2 bottom of primary degree and this time Housing Scam can form wave 2 bottom of wave 5 (shown as alternative)
The nature of rally in next week will be important to observe. Even the global markets have been moving very fast without giving any prior warnings. There were times when UK market (FTSE) did not move more than 30 to 50 points on daily basis but now a movement of more than 100 points in either direction has become a routine.
When intraday volatility is so high one needs to have lesser positions and stricter risk managements even if one can be whipsawed in either direction. It is better to loose small amounts number of times than to loose everything in a single trade and be out of market for rest of the life!
In short we will wait for Sensex to either move above 20550 levels or below 19400 levels to give us a clear indication of where it wants to head!