Indian Equity: Concept of rotational trend!

The below article highlights why trading equity has been challenging even though Nifty has moved up from 5600 and made a high of 6030 on  15^th July 2013.

The below was published on 15^th July 2013 morning research report “The Financial Waves Short term update”

Concept of Rotational rally: The star performer was IT index on Friday and there was no contribution from Smallcap and Midcap sectors. Infact these sectors closed minor negative when the major index was up by more than 1%. A very interesting observation over past 2 weeks is that during the formation of wave i which lasted only about 3 days from 5600 to 5900 there was strong momentum across the board. During the sideways consolidation between 5750 and 5900 that lasted for 7 days many of the individual stocks from high beta sectors and entire ADAG pack showed spectacular performance but blue chip stocks were laggards. The break above 5900 was contributed by Banking and interest sensitive sector to an extent. The rally above 5950 was by IT sector. Each there have been a few sectors that are outperforming and the other sectors moving sideways during that period. This is known as rotational rally on very short term period. During such scenario if a trader is trading a particular sector as soon as the breakout in that sector happens he will be frustrated to see other few sectors rallying except the ones he entered. During such scenario it is better to have bets across different sectors because the current rally is on rotational basis and it is extremely challenging to pick the sectors that will be rallying next.

Nifty 60 mins chart: as of today 12 pm

Many of the stocks like Axis Bank, SBI, ICICI Bank, Hindalco, Tatasteel, DLF, BHEL, IDBI, Tata Motors have formed very good consolidation patterns with….………but on the other hand stocks like Infosys, Relcap, Rpower, RCOM, Reliance Industries are in momentum on upside but exhibiting negative divergences to some extent. Elliott wave also helps to evaluate the stocks.

Please beware that there is no price confirmation yet and secondary indicators are suggesting underperformers can start outperforming and outperformers can now underperform. Positions should be taken only on breakout of important resistance levels on upside in underperforming stocks.

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