Impact of GST on Nifty and stocks. How to trade post the news?

Impact of GST on Indian Equity markets – Nifty and Sensex and what should be the trading strategy post the event?

Many were eyeing on this one major event as positive trigger to carry the overall market higher and Nifty towards 9000++ levels. People want to see logical reaction by stock market after a news or event and they many had their bullish bets on passing of GST bill in RajyaSabha.

What is concerning me is that if the news was that significant then we should have seen a strong rally in the opening hour itself. Instead the Gap up opening was immediately filled in and now we are seeing a range bound movement.

GST in all its sense will benefit a few sectors like Auto, Cement, FMCG but might also hurt a few other sectors like IT, Pharma, Telecom which have to shell out more tax then they are paying in existing regime. 

Neverthelss, there is always more to the stock price movement rather than tax policy decision. What majorly impacts the business is the demand by consumers and the impact of input costs and what impacts stock prices is perception about the future demand and outlook. Too much euphoria had been created around an event which in all due respect is positive but markets are discounting the future and the study that helps us understand the current position of equity market is Elliott wave irrespective of the news or event.

Nifty 60 minutes chart:

Now look at the above chart and try to think can you identify the areas of major news or events and markets reaction to it?  Yes the entire price movement is well channelized and what more – Even the impact of Brexit was only temporary where prices found support near the channel and bounced back only find resistance near the upper end.

Look at today’s news or GST bill being passed in RajyaSabha which is considered as one of the biggest reform since 1992. But what is the impact on prices so far?

Case in point: News or events will only result into temporary movement but eventually the original trend will resume.

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Is liquidity driving the Equity markets? Rajyasabha TV interview of Ashish Kyal

RajyaSabha TV interview of Ashish Kyal

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Nifty: Application of Bollinger Bands®, RSI, Channels to identify the reversal areas!

Nifty and Sensex has continued to move in a range for majority of the time rather than showing a strong trending move. Bollinger Bands work best during such scenarios.

Non – trending movement is frustrating for majority of traders as there is no strong trend which is required to make the most out of the trade. During such phase one needs to be patient and adopt the indicators that work best in order to identify the key reversal areas for capturing smaller moves rather than trends.

Nifty 60 mins chart with Bollinger Bands, RSI and Channels

The above chart shows some basic technical analysis method yet powerful tools that can help in identifying the key reversal areas. As shown, there are three most important techniques applied here – 

- Bollinger Bands – to capture the range and reversal areas

- Relative Strength Index (RSI) – to understand the momentum

- Channels to identify the key resistance or support zone

Now look at the above chart again and try to see how prices behave during month of June when it approached near the channel resistance and contraction within the Bands that confirmed sideways or range bound movement.

Let us now move to current scenario where the movement is again in a range after just few days of trend. Also during this entire movement lot of euphoria has been created as prices have been hitting new 2016 highs even though temporarily. At the same time RSI has been exhibiting negative divergence suggesting lack of momentum and channel has been providing strong resistance to prices.

Bollinger Bands has turned flat and the upper and lower bands are acting as important resistance and support respectively. It will be at that time when we start seeing expansion in these bands again with decisive break above or below the key levels a strong trending move will emerge!

Each of these techniques are in sync that the euphoria might be short lived but again most important thing is price confirmation which is still awaited!

To understand the key reversal areas on Nifty, Bank Nifty and stocks get access to “The Financial waves short term update” and see when the above techniques are combined along with Elliott wave counts. Also the reason why we are not expecting 9000++ levels like majority. To subscribe visit Pricing Page

How to pick Momentum Stocks – Bajaj Finance or Reliance Capital?

Trading or Investment success depends a lot on Stock selection and Timing. In case of Investment timing can be off to some extent but in case of trading timing is again a very important element.

Now let us try to see a very simply method to select a stock either for Momentum trading or for Investment purpose. A few might not agree with the below methods if they are contrarian traders or value investors. But that is what results into market movement after all!

The below technique shows two well known companies – Bajaj Finance among the news post it touched 10000 mark giving exorbitant returns in just few years and the other one is Reliance Capital stuck in medium term downtrend post the top made in 2014.

We can clearly see inverse movement in terms of trend in both of these stocks and for a momentum player one should trade in direction of all the trends – short, medium and long term. Bajaj Finance has continued to be a strong outperformer and this stock rose by nearly 10% even after so many months of already up move.

Look at the charts carefully and let us continue our discussion:

Bajaj Finance and Reliance Capital line chart:

The blue line chart representing Bajaj Finance clearly highlights increase in momentum with each passing day. The valuation might not be justified that many fundamentalist might argue but the least line of resistance is on upside and any dips should be utilized as buying opportunity unless and until we see a clear reversal sign or formation of lower highs and lower lows.

I would rather avoid buying an underperforming stock like Reliance Capital both for trading or investment because the fastest way to see increase is share value is with the one which has least resistance on upside. In Reliance Capital each rise will be stopped even though temporarily by the supply from investors who are stuck in the stock for many months or years. This will result into intermittent pause or reversal on downside whereas if a stock is trading at new highs it is everyone’s guess how far and how fast it can go! Trust me catching a top in such outperforming stock is not possible and if someone claims to know he is probably just a novice.

Case in point: In stock market one should never try to think that the stock has already doubled so how far it can go… Bajaj Finance is a classical example that shows rise of more than 10 times in just few years and inversely one should avoid catching a low in falling stock by guessing how much more it can fall else you can be stuck in stocks like HDIL, Suzlon, Reliance Capital and many more that are still trading way below its top made in 2008, rest alone the opportunity loss for these 8 years!

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How to trade stocks like Yes Bank using Moving average and Channeling technique?

Dow Theory applied on stocks like Yes Bank. Trading is a systematic process. Moving average and Channels can help to develop trend following systems.

Dow Theory is one of the important subjects of technical analysis.  This theory is 100 years old however it is still one of the most powerful technique to determine the trend in current volatile market environment. Below are the important rules of Dow Theory:

1.      Market has three trends: Primary, Intermediate and Short term trend.

2.      The stock market discounts all the news.

3.      Stock market averages must confirm to each other.

4.      Trends are confirmed by Volume

5.      Trends exist until the market confirms.

These rules can be applied on any asset class. We were able to capture the up move of Yes Bank recently as trading in the direction of medium term trend is less risky and can generate fruitful results.

Yes Bank 60 mins chart: (Anticipated in the morning of 26^th July 2016)

Yes Bank 60 mins chart: (Happened till now)

(Part of research published in the morning of 26^th July 2016)

Wave analysis:

“Yes Bank has continued to move higher after taking support at lower levels. Trend will remain positive unless we see reversal in this stock as per Dow Theory method.

In the month of February 2016 prices made an important low at 663 level and since then up move has continued. In the entire up move from 663 to 1185 level, prices have continued to protect the low of prior week. This structure is intact from last 22 weeks. As per this technique, 1143 is the important support. 10 weeks Exponential moving average is proxy for the same which has been providing strong support to the up move. Although the entire rally is corrective in nature it is better not to catch the top as long as pivot supports are intact on downside.

As shown in 60 mins chart, 100 periods Exponential moving average along with channeling technique has continued to work well during the entire rise. In last session also prices touched 100 periods EMA and bounced back on upside sharply. This suggests that up move has some more steam left on upside. On downside 1155 is the crucial support.

In short, Yes Bank trend is positive with 1155 as support on downside. Move above 1190 will suggests that trend towards 1225 has started where channel resistance is placed.”

Happened: Yes Bank is moving in lines with our expectations. Post breaking above 1190 level prices sustained above the pivot support and made high at 1226 level in today’s session. It is prudent to trade in direction of the trend unless there is reversal as per Dow Theory and we see clear lower highs and lower lows formation. However, one should be aware about the overbought zone and levels where risk reward is not proper.

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