India Stock Market Analysis

Nifty faces strong resistance for medium term

noreply@blogger.com (Sundy) — Sun, 06 Sep 2009 12:58:11 PDT

It has been well established by Ralph N. Elliott in his Elliott Wave Theory that price movements of a security can be predicted by observing and identifying a repetitive pattern of waves. The price movement consists of 5 waves in the direction of the main trend followed by 3 waves in the corrective trend. The duration of these waves can last for centuries (Grand Supercycle), decades (Supercycle), years (Cycle), months (Primary), weeks (Intermediate / Minor), days (Minute), hours (Minuette) and minutes (Sub-Minuette). The 5-3 pattern remains constant although the time span of each may vary.

Technical traders use this theory to identify breakouts for profitable investment opportunities. There are several web sites and books related to this theory; Wikipedia describes the principles in detail. Cyclpro has an exhaustive list of rules and guidelines which need to be observed during the Elliott Wave Analysis.

However, for those with limited resources of time and energy, there are few basic rules that need attention.

Wave 2 cannot retrace beyond low of Wave 1; i.e. not more than 100%
Wave 3 is never the shortest among impulse waves 1, 3 and 5. This means either Wave 1 could be the shortest or Wave 5 could be the shortest.
Wave 4 cannot fall below high of Wave 1.

Using Fibonacci retracements of 38.2% and 61.8%, following relationships between waves can be identified.

Wave 2 = 61.8% of Wave 1

Wave 3 = 161.8% of Wave 1

Wave 4 = 38.2% of Wave 3

Wave 5 = 100% of Wave 1

The above values are approximate and have been found to occur frequently in well trending markets. It is not uncommon for Wave 2 to fall below 61.8%, there are cases in which Wave 2 has retraced only 38.2% of Wave 1. Similarly, Wave 3 has sometimes retraced even 261.8%.

So, what may happen in case these guidelines are violated?

The answer is simple. The move becomes “suspicious.” This is usually considered as a warning sign; a trend reversal may follow soon.

Let us now discuss the long term chart of Nifty.

In the above chart, it can be seen that:

The long term bull market started in April 2003 when Nifty had a low of 920
Wave 1 ended at 2015 during January 2004
Wave 2 retraced 66% and ended during May 2004.
Wave 3 retraced 227% of Wave 1 and ended during May 2006.
Wave 4 retraced 47.4% of Wave 3 and ended during June 2006.
Wave 5 retraced 343% of Wave 1 and ended during January 2008.
Wave a retraced 75.5% of the entire movement from low of Wave 1 (920) to high of Wave 5 (6357) and ended during October 2008 with a low of 2253.
Wave b has retraced 60.7% of Wave a when it touched 4744 in August 2009.

Cyclepro guidelines suggest that Wave b is likely to retrace 38.2%; the next most likely retracements are 50% and 61.8%. It also says that the time taken by Wave b is usually between 61.8% and 161.8% of the time taken by Wave a. Wave a lasted for 9 months; wave b is currently in its 11th month.

Taking all these facts into account, we may come to the conclusion that Wave b may end anytime and Wave c is likely to start afterwards.

Nifty has not shown any kind of reversal signs so far in daily charts. The support trendline remains unpenetrated yet. We may see some more sideways movement in the near future. Nifty will face strong resistance around 4797.

Bullish stocks for short term:

CMP = Current Market Price BB = Bullish Breakout TT = Technical Target

Binani Cement: CMP 63.55 BB on August 28 TT 83.85
Gitanjali Gems: CMP 117.65 BB on August 25 TT 162.30
ISMT Limited: CMP 37.55 BB on August 27 TT 56.40
Omaxe: CMP 116.45 BB on August 28 TT 170
Tata Sponge: CMP 222.40 BB on September 4 TT 265.80

How to trade two day candlestick patterns?

noreply@blogger.com (Sundy) — Sun, 01 Mar 2009 04:54:19 PST

Investors and traders use technical analysis to identify trends, breakouts, reversals etc. In a bear market prices keep falling; so an investor who wishes to take long positions will have to wait until the market reverses. The breakout trader may take long or short positons based on bullish or bearish breakouts.

In my previous article "Candlestick Patterns in Indian stock markets" we discussed about engulfing pattern. Candlestick Charting is a complex and interesting subject. Steve Nison has authored a couple of books viz. Candlestick Charting Techniques and Beyond Candlesticks. Both offer excellent insight into various aspects of candlestick charting. C andlesticker is another site which explains reversal and continuation patterns with plenty of illustrations.

Candlesticks offer effective trading signals which are not available with other methods of charting. Several reversal and continuation patterns have been recognized but few of them (like abandoned baby) are very rare. Certain candlestick patterns require 3, 4 or 5 trading sessions to form. Therefore, two day candlestick formations are more common.

Following are the common two day candlestick patterns:

Engulfing (bullish & bearish)
Harami (bullish & bearish)
Harami cross (bullish & bearish)
Piercing line (bullish)
Dark cloud cover (bearish)
Shooting star (bearish)

The available literature suggests that engulfing & harami cross patterns are more powerful than others (of course it depends on where the formation occurs; rarely, a harami pattern has been found to be effective compared to engulfing pattern on a similar chart.)

It is to be remembered that the overall technical picture needs to be studied thoroughly before attempting to experiment on candlestick patterns. This of course comes with practice and patience.

Bullish engulfing pattern is formed when real body of a green candle engulfs (wraps around) real body of a red candle. This is the basic definition; however there are several variations as shown below:

1. The entire black candle, including shadows (this is the computer age; so red candle) is engufed by real body of white candle (green candle).

2. The real body of red candle is engulfed by real body of green candle and shadows of red candle are engulfed by shadows of green candle.

3. Real body of red candle and its lower shadow are engulfed by real body of green candle but upper shadow of red candle is not engulfed by either real body or shadow of green candle.

4. Real body of red candle and its upper shadow are engulfed by real body of green candle but lower shadow of red candle is not engulfed by either real body or shadow of green candle.

5. Real body of red candle is engulfed by real body of green candle but neither upper shadow nor lower shadow of red candle is engulfed by real body or shadows of green candle.

Based on available literature, my own observation and trading experience, I've created a checklist for engulfing and harami patterns (bullish). It is recommended to have checklist for each candlestick pattern.

Bullish engulfing / harami candlestick pattern checklist

Is the stock on a down trend?
Is the downtrend fast, protracted?
Is the green day volume more than red day volume?
Is the green day volume more than 21 day moving average?
Is the entire red candle is engulfed?
Are the shadows of red candle engulfed by shadows of green candle?
Does the entire green candle lies within real body of red candle? (Harami)
Are the shadows of green candle within the shadows of red candle? (Harami)
Does the candlestick formation occur after a critical support is tested?
Is there positive divergence in case the stock makes a new low while candlestick pattern is formed?
Is the red candle a ‘long black’ candle? (Harami)
Is the green candle a ‘long white’ candle? (Engulfing)
Is the first candle doji? (Engulfing)
Is the second candle doji? (Harami)
Does the red candle have minimal upper shadow?
Does the green candle have minimal lower shadow?
Are the candlestick centerlines nearly equal?
Does the green candle engulf more than one real body?

The ideal answer for all 18 questions above is YES; but it may not be always possible to achieve it. Interested investors and traders may start paper trading with these ideas and try to arrive at a conclusion as to what works and what doesn't in real trading.

Nifty Review : Bulls are ready to take charge...

noreply@blogger.com (Sundy) — Sat, 03 Jan 2009 22:32:13 PST

At the outset, I wish all the visitors to this blog a very happy and prosperous new year. Will 2009 be a good one for investors and traders? Let's find out in a moment.

Visitors come to this site from across the globe; 72% of them are from India, 12% from US, 10% from Middle East and remaining from countries like UK, Singapore, Australia etc. There were surprise visitors from Korea and Lebanon too.

Many people have asked me through email why this blog is not updated more frequently. Of late, I am little busy with other commitments. I feel like posting at least 2 articles a week (time permitting) and hopefully I will be able to do it soon.

As I have mentioned in FAQ this site essentially discusses the Indian stock market scenario from a technical perspective. The information contained herein should not be considered as investment or trading advice.

Recently I reviewed a manuscript from McGraw-Hill Education (India) and this is what they wrote to me:

"Dear Mr. Sundaramurthy,

Thanks a lot for your wonderfully prompt reply!

Your views on the relative importance and relevance of technical and fundamental analyses are particularly enlightening. Although you had explained the same in the review form, I needed a clearer opinion on the applicability of the synthesis approach which I received in the mail. We would duly communicate your suggestions and comments to the author, and accordingly take the publishing decision. Your expertise has been of great help to us. Should you consider writing on your domain, do consider our organization. We hope to draw on your knowledge in such assignments in future."

Many thanks to McGraw-Hill Education (India).

During October 2008 Nifty had lost 26.41% while in November 2008 it lost only 4.52% and in December 2008 it gained 7.41%. Usually the stock market participants (investors and traders) think that December is not a great month because FII's will go for a year end holiday. But Nifty has developed an interesting bullish "Pennant" formation. We discussed about such a formation (bearish though) in Will the bulls be able to win the battle? as well.

Flag and pennant formations are short term continuation patterns which precede the resumption of previous trend. In the above chart, "pole" formation i.e. a sharp upmove started from October 27, 2008 (watch the hammer at the bottom of the downtrend) and this move contained 3 long white candles. A symmetrical triangle was formed between November 11, 2008 and January 2, 2009. A break above the resistance line will mark the beginning of continuation of the uptrend. Technical indicators like MACD, Wilder's DMI and parabolic SAR favour an upmove only (though both 50 DMA and 100 DMA are well below the 200 DMA).

So, watch out for the bulls! they are ready to take charge once again.

Given below are technically bullish for the short term.

Bindal Agro (15.25):

This stock moved from a low of 8.65 on October 29, 2008 to a high of 13.15 on November 10, 2008. The downtrend that followed made a new low of 8.20 on December 2, 2008 but it showed positive divergence (i.e. a lower low was formed but MACD showed a higher low). The stock touched a high of 17 on December 17, 2008. A bullish "Three Outside Up" candlestick pattern was formed on December 30, 2008 indicating support at the previous high at 13.15. Though the volume on the third day of the pattern was below average, it is still a powerful pattern. The stock is likely to face resistance at 21.60 (which was the support it broke during the previous downtrend).

Crompton Greaves (149.35):

The stock too made a positive divergence during November 2008. The demand during the first wave was steady as indicated by rising prices and volumes. The decline had only one black day with more than twice volume at the peak of wave 1. However this can occur at times. On January 2, 2009 the stock has broken the resistance trendline with good volumes. Technical target works out to 201.90; the stock may face resistance at the previous high at 186.90.

Gujarat Alkali (80.30):

The stock made a low of 55.35 on October 27, 2008 and a small upmove was witnessed till November 5, 2008 when it touched a high of 76.90. On November 21, 2008 it broke the previous low by registering another low of 55.10. However a positive divergence was seen. Nearly after 2 months of consolidation, the stock has broken out on January 2, 2009 with good volumes. Technical target works out to 98.70.

IFCI (23.15):

During the decline from a high of 22.65 made on November 5, 2008 IFCI did not break the previous low of 15.35 registered on October 27, 2008. After 40 days of consolidation the stock did break the previous high; however it declined further back to 19.55. The upmove has started once again. The falling window (downward gap) at 26.20 is likely to be a strong resistance; once this is broken the next major resistance is at 44.30.

Sterlite Technologies (70.10):

Like IFCI this stock was in consolidation pattern from November 5, 2008 till December 15, 2008. On December 16, 2008 it broke the previous resistance at 69.80 with very good volumes. It was once again consolidating and sharp rise in volume was seen on January 2, 2009. Technical target for the stock works out to 90 and 121.

India F & O Market Weekly Review

noreply@blogger.com (Sundy) — Fri, 14 Nov 2008 23:27:53 PST

In my previous post we discussed about the possibility of a rally in the Nifty and its likely upside target of 3435. I had also mentioned that a confirmation is necessary in the daily/weekly charts for bullish reversal.

Nifty made a high of 3241 on November 5 but a bearish "three outside down" candlestick pattern (bearish engulfing pattern followed by a redcandle and lower close) was also formed. This indicated a bearish reversal in daily chart. Nifty closed higher for the next two days but for the last 3 sessions it has closed negative. MACD and Wilder's DMI both favour bearishness on weekly chart.

External factors like falling crude prices (from $147 per barrel to $57 per barrel) have not made any impact on Nifty. Readers may be aware that while Nifty went up from 1000 in 2003 to 6300 in January 2008, crude prices were also going up, from approximately $30 per barrel to $100 per barrel. So it is only the demand/supply forces determine the Nifty and its trend.

Let us now discuss the futures contracts of Nifty, Bank Nifty, Bharti Airtel, Infosys and Reliance. It is to be noted here that the charts are based on data for November contracts. The Open Interest is shown as green line.

Nifty:

The October 2008 contracts for Nifty expired on 29/10/2008. Few days prior to this, selling was witnessed in the November contracts as prices declined. This indicates a sell off. On 28th October Muhurat trading was conducted and hence the volume was low. We can see a healthy uptrend in futures since rising prices were accompanied by rising volumes. However, similar to Nifty (Spot), a three outside down candlestick pattern was formed, confirming the bearish reversal. When prices rose afterwards, volumes declined; this was followed by falling prices and rising volumes. After the 'healthy' uptrend, volumes should have ideally fallen when prices fell. This would have meant bullishness. Now that the volumes are rising with falling prices, we may conclude that the Nifty future is likely to test its lower support of 2207.

Bank Nifty:

We can observe a similar pattern in Bank Nifty too. However, no candlestick formation could be observed at the top of the uptrend.

Bharti Airtel:

Two huge "falling windows" or "downward gaps" were observed prior to the uptrend. In this case too, a bearish three outside down candlestick pattern was formed with a downward gap on the third day and increased volume. There is some sell off occurring over the last few trading sessions.

Infosys:

The most recent high of 1414 remains a strong resistance. The contract is now moving on a sideways pattern. The volumes are also inconsistent. This means that the market is currently undecided over the direction. Interesting to note that the sideways movement started on October 10, well before the expiry of Nifty October contracts.

Reliance:

The "falling window" formed on October 16 is acting as a strong resistance for the stock futures. Similar to Bharti Airtel, a three outside down pattern with a downward gap on the third day was formed. Rising volumes and falling prices over the last 3 sessions indicate sell off.

Conclusion:

Current technical scenario suggests that Nifty's bearish trend is likely to continue for the medium term.

Are bears still active in Indian stock market?

noreply@blogger.com (Sundy) — Fri, 14 Nov 2008 21:38:34 PST

Indian stock markets have been witnessing heavy selling pressure over the last couple of months. Many reasons are being attributed to this fall, like US economic recession, inflation, rise in fuel prices etc. I had indicated in one of my previous posts, "Will the bulls be able to win the battle?" that Nifty had a bearish target of 3220. I posted this article on March 21, 2008 and Nifty touched a low of 3199 on October 10, 2008. While we can arrive at probable bullish and bearish targets based on chart patterns and breakouts, it is generally not possible to precisely predict a time frame.

The bear market made many investors and traders cry. Of course, the shorties booked lots of profits as well. Those who invested their retirement funds were wondering why such huge sell off was taking place. It was reported by media that FII's were selling (who was buying ?). Many technical/fundamental analysts disappeared from business channels; few stock recommendation web sites closed down (no patronage?!). Television anchors were saying indirectly that technical analysis was not working in bear markets! Then what was working in bull markets?

As I have mentioned in my FAQ, the investors need to do their homework well before investing. Hot tips, instant message calls and SMS may work in a rising bull market but certainly not in a falling bear market.

Between July 16 and September 18 an "inverted cup" was formed; its right side low of 3800 was broken on September 29, leading to a bearish "inverted cup and handle " breakout with downside target of 2950. Even this has now been broken. Nifty fell to a low of 2253 on October 27, breaking the June 2006 low of 2596. The Muhurat trading (just an hour) on Diwali day saw many stocks rallying. This was followed by another positive close yesterday.

Let us now take a closer look at the weekly chart of Nifty.

There are still no confirmed reversal signs/positive divergence in the weekly or daily charts of Nifty. However, it can be observed from the above chart that Nifty has just managed to touch the lower support line of the Andrew's pitchfork.

In a trending market, prices generally fluctuate between the "prongs" or the lower and upper lines (support and resistance) while "handle" acts as the median line. Now that Nifty has hit the support line on weekly chart, it is rebounding.

How far this rally can extend? It's now too early to presume since there are no reversal signs. The median line could act as a minor resistance; if Nifty manages to break this, the upper line could act as another resistance. A 45 degree line drawn on the pitchfork gives approximate target of 3435. However this needs more confirmation in daily/weekly charts. One may expect a rally in the index in the coming days.

On October 14 Nifty touched a high of 3648 and this Monday's low of 2253 leads to a fall of 1395 points (38.2%) before gaining marginally. In this falling market, there is a stock which stood firm without losing much during this period.

The daily chart of GTL is shown below. It closed at 177.85 on October 14. The biggest fall since then was on October 24 (4.29%). Why did the bears exclude this stock from thrashing?

The previous uptrends ended on May 5 and July 8 respectively. The resistance trendline drawn using these two peaks (reaction highs) has been extended and shown above. Though the stock had closed above this trendline once, volumes were pretty ordinary; a decent rally was also absent. Strong buying was seen after October 6. Usually the first wave is short and the stock closed above the resistance trendline on October 14, though without much volumes. Since then, it is consolidating. Good volumes were seen yesterday with the stock gaining 1%. It has apparently turned bullish. The next technical targets for the stock are 206.80 and 239 in the short term.

Top 5 bearish stocks for short term

noreply@blogger.com (Sundy) — Sat, 20 Sep 2008 16:34:44 PDT

Alstom Projects India (411.70):

During the fall from the high of 1199 formed during last November, the stock found support at 465 on March 24 . The extended rally which followed made the stock touch a high of 739.95 after a month. On June 9 the stock broke the support level and continues to trade below it. A new low of 308.25 was made on July 2. The stock was not able to break the resistance (i.e. previous support) on two occasions. The volumes on the second peak were less compared to the first; though the stock formed a higher high, MACD histogram formed a higher low, leading to negative divergence. This stock is truly for the bears.

Hotel Leela (31.45):

Like Alstom Projects India this stock too, found a bottom on March 24 at 37.65. But after breaking the support on June 12 it had a minor bounce back. Once again it broke the support on June 23. It is currently on a downtrend after failing to close above the resistance at 34. One shouldn't expect much from the stock in the short term.

Moser Baer (90.45):

This stock broke the March 24 low of 119 on July 1. Between July 10 and July 16 it witnessed heavy selling. It formed another low of 87.80 on August 1 when it broke the previous low of 88.20 made on July 17. As such no bullish reversal signs have appeared on chart and the bearish trend is likely to continue.

Omaxe (124.85):

This is yet another badly affected stock in the last 8 months. It has fallen from the high of 612.50 on December 13, 2007 to a low of 111 on July 2, 2008. It is really struggling to be precise - having closed below the 61.8% retracement 6 times after wave 1 formation. This is an indication that the stock is unlikely to break its resistance at 144.80. Even if it manages to break, there are more chances of stock reversing again.

Pyramid Saimira Theatre (167.10):

The stock broke the March 24 low of 250 on June 20 and closed below it. Though a minor rally was seen it was not good enough to take the stock above the resistance level on a close basis. Vigorous selling was seen on June 30 and July 1 losing 16% and 20% respectively. Currently the trend is pretty much flat and one may consider entering only after confirmed reversal signs appear on charts.

Top 5 bullish stocks for short term

noreply@blogger.com (Sundy) — Sun, 03 Aug 2008 00:57:46 PDT

Adlabs Film (523.20):

This is a typical example of a stock losing more than 80% from all time high. On January 7, 2008 its highest price was 1940 and on July 2, 2008 it touched a low of 340. This is how a stock can 'reward' an investor if he purchases it at the peak.

"Buying a wrong stock at the right time may fetch you more profits than buying the right stock at the wrong time"

What's all about right and wrong here? Let's discuss the daily chart below.

One can see the near non stop fall from 1940 to 485.50. The stock was on a minor uptrend since March 24 after this low was formed. On June 27, the stock managed to close below the support level. It formed a new low at 340 on July 2. Now the stock has managed to break both resistances at 469.80 and 485.50 with volumes and currently on its third wave. Technical targets for the stock works out to 623.40.

JP Hydro (55.85):

This too, is available at a premium if you consider the all time high of 143.40. Like Adlabs Film, this stock has managed to break resistances at 46.50 and 49.80 with volumes. The stock is on the third wave and the bullish target for the stock is around 68.75.

Neyveli Lignite (119.30):

This stock has a medium term support at 85.35 and this has not been broken yet. Wave 1 started on July 4 with a low of 90.40 and on July 23 it encountered a bullish breakout. Technical target for wave 3 works out to 154.50.

Punj Lloyd (281.35):

A very interesting "double bottom" formation has occurred in the daily chart of the stock. It's worth mentioning here that the stock is available at nearly 50% of the all time high of 656. The technical target for the stock will be 384.80.

Siemens (575.15):

A bullish "inverse head and shoulder" pattern has been formed and the neckline resistance has been broken with a strong upward gap. Like Punj Lloyd this stock too is available at a premium; nearly 50% fall has occurred in the last 8 months. The next resistance exists at 681.

Nifty at crossroads; Crucial week ahead!

noreply@blogger.com (Sundy) — Sat, 02 Aug 2008 23:57:19 PDT

In the previous post "Nifty and (no) confidence vote" I had mentioned that the Nifty had turned bullish for the short term. We discussed 3 possible scenarios for the uptrend:

1. The current rally may be expected to continue for a while since wave 1 has just started.
2. Nifty may witness a minor correction or sideways movement before further upward movement.
3. Nifty may have an extended rally (only to fall back again to support levels).

After two weeks, Nifty has followed scenario 1.

In the daily chart shown above, it can be seen that Nifty had gained consecutively for 5 days in a row from July 17. In other words, it went up from 3790 to 4539. It could not penetrate the resistance trendline and a down trend had started. The support at 4216 was broken on July 29. However Nifty bounced back strongly forming a "three inside up" pattern i.e. harami pattern followed by a higher close. It is likely to face strong resistance at around 4450 which is only 27 points away from Friday's high. Will it break the resistance trendline? Will it break the next resistance at 4539 to move higher? We'll find out the answers this week.

While looking at price and volume for predicting future price action, the slope of the trend plays an important role. High slope indicates a strong demand but when the supply begins, a sell off is inevitable. Low slope is identified by weakening demand.

The wave 1 obviously had a too high slope. The fact that it failed to break the resistance trendline is also an indication that some correction was on the cards. But, the harami candlestick pattern at the support level confirmed the reversal.

We may consider the formation of wave 1 very important. Given the high slope, the Nifty is likely to consolidate for a few more days before breaking out. In this case, 4159 should act as a strong support. If the Nifty does not break the resistance and falls below that level it means that the short term bullish trend has reversed.

So, basically we are at crossroads - just waiting to see where to go. Monday's trading session becomes crucial in deciding further movement of the Nifty.

The weekly chart indicates that Nifty has managed to retrace more than 38.2% fall from 5299 to 3790. This week's trading range was entirely within the previous week (also known as inside day pattern) which many traders use for market entry. 61.8% retracement works out to 4723.

In the monthly chart of Nifty, last month's low of 3790 was below the support trendline. Though the index has managed to bounce back, this is a warning that more downside exists for long term investors. Moreover, Nifty has closed below the 21 month moving average for 2 months in a row i.e. June and July 2008. This could well be the end of the long term bull market.

Can Technical Analysts predict whether a stock would "freeze" ?

noreply@blogger.com (Sundy) — Tue, 29 Jul 2008 06:07:33 PDT

If you are watching the live market regularly, you may come across few stocks which "freeze". Once a stock is upper frozen, the price cannot exceed that value for the day. Similarly once a stock freezes on the lower side price cannot fall below that value. Trading of course, will continue. The stock exchanges generally keep a limit on how much the price of stock can fluctuate during a trading session. There are exceptions to this rule as well. For those scrips which are traded in Futures & Options segment, no price bands on either side (i.e. upper or lower price limits) are applicable. However, the exchange may temporarily prevent the erroneous order entry by limiting the order price to say about 20% of previous close value.

At NSE at least 4 price bands are available depending upon the volatility. For cash segment, these are fixed at 20%, 10%, 5% ad 2% . For the Nifty 10% , 15% and 20% circuit breakers are applicable i.e. trading may be suspended temporarily at 10% and 15% while at 20% session will be closed for the day.

As a newbie I always wondered why some stocks hit the upper freeze limit and some others hit the lower limit. The freeze is obviously due to excessive demand or supply. Can a technical analyst spot these "freezes" and become richer by 20% every day or alternate day?

I tried to find an answer to these questions. Opportunties could be there but the risk involved with this type of trade is very high. Let's discuss the daily chart of Manali Petrochemical Limited as an example.

In the chart shown above, waves 1 through 5 are indicated. Usually, wave 1 will be the shortest among 1, 3 and 5. Theoritically, wave 3 would retrace 1.618 times wave 1 while wave 4 cannot fall below the high of wave 1. In this particular case, wave 1 failed to break the resistance at 14.40 on a close basis. During wave 3 the stock didn't close above the high of wave 1 as well. The highest volumes during wave 1 and 3 are marked as x and y. Wave 4 terminated slightly above the low of wave 2. After 3 days of the beginning of wave 5 high volumes were noticed (marked as z) and the stock gained 2.45%, 20.14% and 7.39% in the next 3 trading sessions. The long upper and lower shadows on the last day indicate high volatility. This was followed by a bearish engulfing pattern which was confirmed by a negative close next day. After nearly 5 weeks, the stock fell to back to 10.25, the low of wave 1.

This can be considered as a "violation" of Elliott wave theory. There are other examples as well, like:

A stock may break the critical horizontal support (low of wave 1) but it might bounce back strongly; an exit opportunity for the bulls and a possible trap for the bears.
A stock may break the trendline support but a strong rally may be seen; again, exit opportunity for the bulls.
Usually, increasing volumes with increasing prices indicate bullishness during impulse waves; declining volumes with declining prices indicate that the stock is likely to bounce back after correction. However, when volumes increase and prices fall during corrective phase, it is an indication that the stock may turn bearish. In such a case, bulls might push up prices quickly to exit stocks.

While it is true that stock prices are determined by the market participants during trading, these types of "traps" are always part and parcel of the trading game.

Moreover, all stocks which fit into this category may not yield "quick" returns! The bulls may be concentrating on few stocks and it is just not possible to figure out those using conventional technical analysis methods.

Nifty and (no) confidence vote

noreply@blogger.com (Sundy) — Sat, 19 Jul 2008 23:12:29 PDT

I received an email from a reader last month regarding analysis of Nifty.

-------------------------------------------------------------------------------------------------
Date: Tue, 17 Jun 2008 11:00:25 -0700 (PDT)
From: ratika dewan
Subject: Re: require help
To: Sundaramurthy Vadivelu

Sir,

Thank you for your reply.

For my thesis I am concentrtaing on the following as of now:

Since the objective of my thesis is to figure out the direction in which the market is headed, my main focus will be on secondary data (economic indicators - GDP growth, Inflation etc. and the share prices)...
Ideally have choosen a broadbased index ( NSE Nifty 50 Index) and need to analyze the indicators of volatility and movement for the market...
Also I have been asked to read up on forecasts for corporate earnings for the coming year as well as indicators of the US economy etc...
The whole idea is to be able to link up all these parameters and how they would impact the bullish or bearish outlook in the market.

Sir, from your analysis report I hold you in high esteem and find you worthy of helpin me.

It would be nice if you could give me some information about the above points and guide me on what are the other things I could do. Sir could you let me know how could I create some charts based on the above or from where do I get them.

I would appreciate your valuable suggestions and informations.

Thanking You,

Yours faithfully,

Ratika Dewan.

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This is what I wrote as a reply to this mail:

Stock market, like any other market, is governed by the fundamental principle of demand/supply gap. Stock prices will go up when buyers are willing to pay higher or more buyers want a stock. Prices will fall when supply increases or the crowd wants to dispose the stock.

Technical analysts believe that price of a stock on any given period discounts all other socio-economic factors like political situation, inflation, earnings, GDP, P/E etc. A profit making company's stock may remain stagnant while a loss making company's stock may go up on the expectations of takeover, buyback, merger etc.

You may visit some financial web sites like moneycontrol for corporate earnings. Those figures will have no impact on indices or stocks.

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Technical analysts always concentrate on price action rather than other events that are 'likely' to affect the stock market.

In today's The Hindu Business Line, under 'Index Outlook' plenty of importance has been given to the (no) confidence vote on 22nd July.

"Since we are faced with a confidence vote next Tuesday, the stock markets are likely to be volatile in the run-up to and following the motion. A range between 13000 and 14000 is likely before the trust vote is placed before Parliament. A euphoric reaction on the UPA winning the vote will give the upper targets at 14677 or 15330. If the vote results in the dismissal of the Government, a knee-jerk reaction can give the lower target to the index at 12160 or 11800. Needless to add, that long-term investors should use such a plunge to go on a shopping spree."

Everyone is entitled to his or her opinion and so is the newspaper and the author of the article. But what does the technical charts of Nifty suggest? Let's review the short term chart first.

In my previous post "Will the bulls be able to win the battle?" we saw about the "pennant" formation and arrived at a likely bearish target of 3220 for the Nifty. I need to mention here that chart patterns develop over weeks and months and it is not possible to set a specific timeframe for achieving this target. On July 16 the Nifty reached a low of 3790.

The daily chart of Nifty is shown below.

As you can see from the above chart, Nifty has made a lower low of 3790 on July 16 thus breaking its previous low of 3848 achieved on July 2. The MACD (moving average convergence/divergence) on the other hand, has made a higher low, leading to "positive divergence". This means that the short term trend for Nifty has changed from bearish to bullish. It can also be seen that Nifty has managed to break and close above its resistance trendline, which is another important confirmation.

Now that Nifty has become bullish, what are the next possible targets? There are 3 possible scenarios:

The current rally may be expected to continue for a while since wave 1 has just started.
Nifty may witness a minor correction or sideways movement before further upward movement.
Nifty may have an extended rally (only to fall back again to support levels).

The next resistances for Nifty are the previous highs at 4216 and 4325. If Nifty closes above 4325 on a weekly basis one may expect even 4680. However, the bearish target of 3220 estimated previously still holds good due to the following reasons:

The medium term support at 4002 has been broken for 3 weeks in a row but Nifty has just managed to close above it. The MACD histogram has shown positive divergence in weekly charts but the MACD Line has not. This means that one has to wait for another confirmation in the coming weeks.
For the first time since April 2003 the Nifty had closed below its 21 period moving average in long term charts last month. This can be considered as a confirmation for the 'end' of the long term bull market.
Though Nifty has closed above its 200 DMA, both 100 DMA and 50 DMA are well below the 200 DMA.

Therefore, we may conclude that Nifty has turned bullish for the short term however the uptrend may not be good enough to test the previous peak at 6357.

Select bullish stocks for the week:

Agro Tech Foods Limited (123.05) : This stock has shown a positive divergence in daily charts. Targets of 140 and 160 may be anticipated.
BPCL (284.40) : The stock is bullish and it formed a bullish three inside up pattern on July 17. Though it managed to break the resistance at 281 on July 18 volume was subdued. Watch out for volumes on July 21!
Development Credit Bank (50.95) : This stock formed a bullish engulfing pattern on July 18 and next resistance is at 58.50. Breakout above this level may target 67.70.
Power Finance Corporation (123.45) : It formed a bullish three inside up candlestick pattern on July 17. Close above 130.50 with volumes may take the stock upto 154.45.
Voltas (126.25) : A bullish harami cross pattern has been formed on July 18. Close above 141.85 is likely to take the stock upto 151.50.

Close shave for Gillette!

noreply@blogger.com (Sundy) — Thu, 24 Apr 2008 22:52:20 PDT

Gillette India Limited (earlier known as Indian Shaving Products) manufactures variety of razors, shaving catridges, gels and oral care products. It also markets Duracell batteries. The company has presence in India for more than two decades and US shaving major Gillette (which was acquired by Proctor and Gamble in 2005) has 52% stake.

Let's review the short term, medium term and long term outlook of the stock.

Short term outlook:

The stock was moving in sideways pattern since January 23, 2008. This three month consolidation pattern was broken yesterday with very good volume as shown in the chart. If the stock manages to close above 977 today, one may expect 1087 and 1176 in the short term.

Medium term outlook:

Weekly chart indicates that the stock has fallen from a high of 1548 to a low of 800 between December 2007 and March 2008. Note the bearish three outside down pattern at the top of the uptrend. The doji formation after a long white candle is usually a sign of trend reversal and it was confirmed by the bearish three outside down pattern. The stock managed to hit the medium term support at 800 and bounced back. Medium term target for the stock works out to 1265.

Long term outlook:

In long term chart, the stock is moving in an ascending channel or rising channel pattern. As such, the prices are within the upper and lower trendlines; no breakout on either side could be seen. The confirmation of a downside breakout or sell signal will be known only when the stock pierces the lower trendline and closes below it. Though the stock had two recent lows below the lower trendline, it has not closed yet. This means that long term investors may hold the stock.

Short term India stock picks

noreply@blogger.com (Sundy) — Wed, 23 Apr 2008 23:11:09 PDT

Let us discuss five India stocks which are bullish for short term.

Archies:

Archies fell from a high of 184.40 on January 4, 2008 to a low of 72 on March 24. During the first wave, it touched a high of 98.35 and on April 21 it broke this resistance with reasonably good volume. More buying was seen next day. During the process of bullish breakout the stock also broke its strong resistance at 98. The next resistances for the stocks are at 124.80 and 157.70. The technical target for this breakout works out to 141.60.

Ashok Leyland:

Ashok Leyland made a low of 26.15 on January 22 and since then the stock was moving sideways. Yesterday the stock broke its resistance at 40. One can see the rectangle pattern on the chart. A three month consolidation pattern is usually considered to be strong and one may expect the stock to test the previous high at 57.50. For this to happen, the stock needs to close above 45.65.

Fortis Healthcare:

Fortis too, lost more than 50% of value when it fell from 123 to 59.10 between January and March. A bullish inverse head and shoulder pattern has been formed in the daily charts and the stock has broken the neckline resistance on Tuesday with good volume. Technical target for this breakout works out to 112.10.

JK Lakshmi Cement:

The stock's January 22 low of 90 has not yet been broken. It broke the resistance trendline on Monday and this was followed by horizontal resistance breakout. The stock has also closed above its strong resistance at 125. The stock has to cross resistances at 142 and 156.20 if it has to achieve a medium term target of 172.45.

Natco Pharma:

This stock had a descending triangle breakout (which was not accompanied by a sell off) on March 10. It has made higher highs and higher lows since March 26 and as we can see from the chart, it has broken its previous resistance at 93.20 as well as resistance trendline on April 9. Now the stock is consolidating after negating the bearish descending triangle pattern and the next resistances are at 127.95 and 157.

CRR hike : How will the Indian stock markets react?

noreply@blogger.com (Sundy) — Sat, 19 Apr 2008 22:09:49 PDT

The Reserve Bank of India increased the Cash Reserve Ratio (CRR) by 50 basis points or 0.5% on Thursday. With this, CRR (the portion of deposit which banks are required to keep with the RBI) becomes 8%. It is estimated that Rs.18,500 crores will be drained away from the banking system. The increase will be in two stages of 25 basis points each. The first hike will be from April 26 and the second from May 10. CRR was previously increased in October 2007. RBI has taken this decision to combat inflation.

The media has been speculating as to how the markets will react on Monday. The opinions are mixed though, some people suggesting that these issues are already factored by the market while some others feel that the hike would not be welcomed at all and the market is likely to react strongly, particularly the banking sector.

Let us now discuss the technical scenario of some banking stocks. There are 19 public sector banks and 18 private sector banks listed at NSE. We'll analyze the important stocks here.

Bank of Baroda:

A bearish head and shoulder pattern has appeared in the daily chart and the stock is struggling to break the resistance. The support trendline on weekly chart was broken during first week of March and currently the stock is trading below it since March 12. The medium term support is at 245.05 and a close below this would make the stock even more bearish.

IOB:

Bearish head and shoulder pattern has been formed in short term charts. The stock has broken the support trendline in weekly charts twice.

PNB:

Bearish double top formation has occurred in daily charts. Though the stock has been trading above the resistance level of 487, volumes have been declining and the stock is moving sideways. It has closed below the support trendline for 3 weeks now. With declining volumes one may not see stock moving up further.

SBI:

SBI has not broken the medium term support at 1600 on weekly chart. It is trading well above its medium term support trendline. It closed below 1600 on March 18 but has bounced back since then, though trading sideways. There are no reversal signs in both short and medium term charts. This stock may move either way, depending upon breakout direction.

HDFC Bank:

It is moving in a descending channel pattern since last couple of months. Though the upper trendline of the channel has been pierced on April 17, a close above 1467 is needed to confirm bullishness. Also, a bearish double top has occurred between November 2007 and January 2008 which will act as a strong resistance.

ICICI Bank:

The stock has formed a head and shoulder pattern in daily charts. It has also broken the medium term support at 791 and closed below this level on 3 occasions. The stock appears to be bearish for both short and medium term.

We can see that most of the prominent banking stocks are already bearish with the exception of SBI. CRR hike is viewed as negative news, but it may not affect the banking sector since the stocks have already gone down anticipating this development. "Forget the news, remember the chart!"

Also, the Nifty is currently moving in a descending channel and on Thursday it just managed to hit the upper resistance trendline. If the pennant formation has to be negated, it has to close above 5545 (in which case there will be an inverse head and shoulder pattern). Given this scenario, the market is likely to correct further but it will be purely because of technical reasons.

Revival of select India software stocks

noreply@blogger.com (Sundy) — Fri, 18 Apr 2008 23:03:59 PDT

We discussed about Nucleus Software Exports, Geometric and Tech Mahindra in my previous posts. Let's review 5 India software stocks which appear interesting from a short term perspective.

I-Flex Solutions:

I-Flex touched a low of 889 on January 22, 2008 when Indian stock market took a pounding. This low has remained unbroken since then. After a three month consolidation pattern, the stock has now broken out with very good volume. One may think of its previous high at 1680 as the next target.

Infotec Enterprises:

Infotec Enterprises had touched a high of 449.90 during February 2007. It has fallen since then and made a low of 175.95 on March 18, 2008. The stock has achieved a bullish breakout with a full upward gap yesterday after the formation of a bullish inverse head and shoulder pattern. The next resistance for the stock is at 335 while the technical target works out to 404.

KPIT Cummins:

The stock made a high of 181.90 during January 2007 and during March 2008 it was trading at around 60 losing almost 2/3 of value in little over a year. Though the stock broke the previous support at 68 on March 17, it has bounced back strongly and has even broken the critical resistance at 95. Watch the volumes as it broke the previous support as well as when it reverses during March. The stock is expected to test the previous resistance at 141.80 while technical target works out to 154.

Polaris Software:

We can see a classic "double bottom" formation in the daily chart of Polaris. The stock has fallen terribly from a high of 237.25 on February 6, 2007 to a low of 62 on January 22, 2008. This low has remained intact so far. The volume leading upto the first peak indicates early accumulation while low volumes towards second trough typically occurs in the double bottom pattern. The stock did breakout yesterday with good volume. While one may expect the stock to test the previous resistance at 141.25, a weekly close above it may target around 222 which will be the resistance considering weekly chart.

Wipro:

Wipro's all-time high of 691 was achieved during February 2007. Recently it touched a low of 324 on January 22, 2008. Since then, a bullish inverse head and shoulder pattern has been formed. The bullish breakout from this chart pattern was achieved yesterday with good volume which confirms the pattern. The stock is expected to test its previous highs at 525 and 552. The technical target is estimated to be 572.

Descending channel pattern in these 5 India stocks

noreply@blogger.com (Sundy) — Fri, 18 Apr 2008 23:09:36 PDT

Few readers asked me how to spot a particular chart pattern formation, candlestick formation, reversals and so on.

A good charting software usually gives an explanation of the formula language it uses. While candlestick patterns can be found out by scanning the data with Boolean statements, a visual examination is necessary for other chart patterns like double top, inverse head and shoulder pattern etc.

It is to be remembered that charting software will only tell where a particular condition has occurred. The effectiveness of such formation has to be ascertained by the analyst.

Also, there is no "holy grail" or universal formula that will work in all market conditions. A crossover based on MACD or slow stochastics might work well in a mad bull market but it may not work at all in a dull, falling bear market. This is the reason I emphasize more on basics - support, resistance, chart patterns, candlestick patterns, volume and divergences.

It may appear somewhat difficult initially but once accustomed to these formations, we can immensely get benefitted from the analysis.

In my previous post I discussed about "descending channel" pattern followed by a bullish breakout. There are five more India stocks in which this pattern has occurred very recently. The following table shows the NSE ticker, date of breakout and possible targets.

Ticker	Breakout Date	CMP	Target 1	Target 2
AARTIIND	11/04/08	35.10	40.90	46.55
GDL	11/04/08	109.25	123.75	138.65
GEOMETRIC	09/04/08	62.95	77.00	83.50
IILTD	11/04/08	50.90	61.40	75.00
MAHINDUGIN	10/04/08	70.05	82.00	92.30

We'll review the performance of these stocks (plus BLUEBIRD and GWALCHEM from previous post) after a while.

Five India stocks that are likely to do well in short term

noreply@blogger.com (Sundy) — Thu, 10 Apr 2008 20:50:27 PDT

Blue Bird (India):

Blue Bird (India) has lost around 67% from the previous high at 93.50. It has formed a descending channel pattern and a bullish breakout was achieved yesterday. It has technical targets of 47.50 and 55.90 in the short term.

Gwalior Chemical Industries:

This stock has also formed a descending channel pattern and it has fallen badly from its high at 127 made three months ago. Minor resistance exists at 58.80 and once this is broken it is expected to touch 70 and 84.50.

Nucleus Software Exports:

While everyone seems to worry about rising rupee, falling dollar, US recession etc. the marketmen seem to think otherwise. This stock has formed a classic "falling wedge pattern" in daily charts. This pattern is a reliable bullish pattern that takes around 3 months to form. The upper and lower resistance trendlines converge to form the wedge and the bullish breakout can be confirmed with yesterday's volume. Once the stock crosses 291 we may think of another target of 317.

Pitti Laminations:

Like Nucleus Software Exports, this has also formed a falling wedge pattern. While breakout volume is not as high as Nucleus it is still above average. This stock has technical targets of 54 and 66.

Tech Mahindra:

During January 2007 this stock touched a high of 2048. However, the next 12 months saw the stock losing more than 70% of its value as it got plundered to a low of 575 on January 22 this year. After a two month consolidation pattern the stock has broken its resistance at 814 with very good volumes. The stock is expected to achieve a bullish target of 991 in the short term.

These two India stocks are bullish for short term

noreply@blogger.com (Sundy) — Sun, 06 Apr 2008 08:35:40 PDT

Though the current scenario in Indian stock market favours bearishness, there are few stocks that are bullish for the short term. We discussed Man Industries previously. Let us now analyze the following stocks.

Hindustan Oil Exploration Company:

During the recent stock market crisis, the stock touched a low of 64.15. The long term support for the stock at 62.05 was intact. Since January 25, the stock had been trading in a "rectangle" pattern which can be seen from the above chart. On April 2 this stock closed above the resistance level at 118.10 with volumes. Unlike the triangle pattern, rectangle patterns are usually more reliable since these represent congestion or consolidation before a stock makes further price movement. 134 and 150 are the technical targets for the stock.

Kaushalya Infrastructure Development Corporation:

Good news for all those who invested in the IPO last year. The issue price was 60 and the stock closed at 100 within 3 days of listing. Since then it has been bearish. Watch the "descending channel" pattern in the chart shown above. Prices tend to move within the parallel upper and lower trendlines (resistance & support) before eventually breaking out. In this case we can see an upward breakout with decent volumes. There are at least 3 resistances viz. 43.40, 54.30 and 64.70 which this stock has to break before it gives some returns to the investors.

Medium term investors - Watch out these 5 stocks!

noreply@blogger.com (Sundy) — Sun, 06 Apr 2008 00:08:47 PDT

Over the last 3 months several stocks have lost badly from their previous highs. Some of them have shed more than 70%. In the current market situation, let us now focus our attention on 5 stocks that are likely to move upwards for medium term.

Broadcast Initiatives:

This stock was truly for the bears. From a listing high of 140 it was thrashed to a low of 37 in early November. It got doubled from this level and made a high of 74 in first week of December last year. Last week the stock made a low of 21.60.

The above chart is drawn on a semi logarithmic scale on the Y axis. It can be observed that the stock has made a new low. A long black candle (this is the computer age so displayed as red) was followed by a hammer and this was followed by a white candle (green). It is to be noted here that as the stock broke the support and closed below, prices fell and volumes had increased. The stock has ultimately found support at 21.60. The support level of 37 will now be the resistance for the stock. Once it breaks this, a technical target of 54.40 can be looked at.

Cummins India:

The stock had fallen from 472.80 in September 2007 to 255 in February 2008. It was between this period the Nifty climbed from 4500 to 6300. If we draw a support trendline between the previous low points, the stock had just managed to penetrate this line but never closed below it. A bullish three inside up candlestick pattern has been formed this week. Note that the entire range of green candle is within the range of red candle. The medium term target works out to 390.

Inox Leisure:

This stock is extremely oversold in the weekly chart. It was all the way up during December but has been beaten down terribly. Last week's low of 80.80 had broken the long term support at 86.15; however the stock did not close below it. In this case too, a bullish three inside up pattern has been formed. The shadows of green candle extend beyond the low of red candle as in the case of Broadcast Initatives. Technically 107 is the first hurdle for the stock. Once it crosses this level on a weekly close basis one might expect a target of 142.

ITD Cementation India:

Like Broadcast Initiatives, this stock has also found a new low and a bullish three inside up candlestick pattern has been formed after a typical sell off. It trades at 367 now but exactly a year ago it made a high of 1569. This is a good example of how investor wealth could be eroded very quickly in the stock market. Currently 392.65 will act as a strong resistance for the stock. A weekly close above this is required for the stock to target 466 and 522. This stock is also highly oversold in the medium term charts.

Mangalore Refinery & Petrochemicals:

The stock had a dream run last year as it went up from 32 to 148 between April and November. But in the last 3 months it has fallen heavily and it is consolidating now. Both long term and medium term charts have been shown above. The stock broke its long term resistance at 69.15 during September 2007 and it nearly doubled in the next three months. However, it lost almost 43% during January 2007 alone. The monthly chart indicates that the stock never closed below 69.15, indicating strong support. In the weekly chart, a bullish three outside up pattern has been formed, suggesting a possible medium term reversal. Technical targets for the stock are 94 and 115.

Man Industries : Good for short term

noreply@blogger.com (Sundy) — Sun, 30 Mar 2008 21:12:09 PDT

In the current bear phase of the Indian stock market, few stocks (ASHOKLEY, DABUR, MARICO, GTL and PENINLAND) are trading sideways. A confirmation of breakout on either side is awaited for determining further course of price action.

Is there any stock which is technically bullish now? The answer is YES and it is Man Industries (India) Limited.

Between January 4 and February 13 the stock was on a continuous downtrend as it fell from 178 to 79. Watch the "hammer" formation on the last day. The first wave registered a high of 128.80 which corresponds to 50% retracement of the fall. One can observe the huge volume just after the hammer formation. The stock had declined steadily afterwards and even attempted to close below the 61.8% retracement of the upmove. However, it bounced back from this support level with volume. A bullish piercing line pattern can also be observed 4 sessions ago. The stock has to break the resistance at 128.80 with volumes to move up. Technical targets for the third wave would be 161.8% from the current low at 95 or about 153.70 (anticipated rise of 34).

Frequently Asked Questions

noreply@blogger.com (Sundy) — Wed, 30 Jul 2008 04:32:11 PDT

Many thanks to all those readers who appreciated the articles and sent feedback to me. To benefit those who would like to know readers' queries, let me answer some of the frequently asked questions.

Q: Do you write for any other web site?

A: Currently I don't write for any web site. I wrote 121 articles for The India Street between May and November 2007 and these were published based on the web site's requirements.

Q: Do you offer any paid services?

A: Strictly NO. The information presented here is not intended to substitute the readers' own research. I believe that every investor and trader needs to do his homework before putting hard earned money in the stock market.

Q: I have a query regarding X stock. Can you answer me? Should I pay for it?

A: Please be specific in your query whether you would like to know the short/medium/long term outlook. You don't have to pay for exchanging mails.

Q: I want to add you in my Yahoo! messenger list so that I can get some intraday forecast. Is it possible?

A: Sorry, it is not possible for me to provide intraday forecast.

Q: I want to learn Technical Analysis with Indian stock market perspective. Is it possible for you to teach me?

A: There are hundreds of web sites and books dedicated for the subject. Try a google search and you will surely get the good ones. Learning from these sources will take a bit of time and practice will make you near perfect (No analyst is 100% perfect!).

However, if you want me to deliver some lectures on the subject I can do it during weekends (Saturday and Sunday). All expenses incurred shall be borne by the organizers. Please use the contact link on the site to send mail. Please note that I need at least 10 days advance notice. This is for making travel arrangements (within India). More time may be required for overseas travel.

Q: Can you send me weekly reviews on mail?

A: Please subscribe to the posts using the link at the bottom of the page.

Q: Where can I find the entire articles list?

A: Please click the Articles List link.

Q: I see only bearish messages from you. Why?

A: Think of me as a newsreader. I just post what I see on the chart. I was bullish on several stocks last year and also very recently.

Q: I heard that Y company is closed down or about to be closed down. There were some news articles that Z company is likely to have joint venture with another company. Is this true?

A: I am a chart reader. Please contact the respective companies for necessary clarifications.

Q: Can you increase the frequency of posts on this site?

A: I can, if it is really worth. Obviously, I have to put in some work here and it is possible only during my free time. Increasing the frequency doesn't mean much but quality of information does.

Buzzing India stocks for the week

noreply@blogger.com (Sundy) — Sat, 29 Mar 2008 02:55:19 PDT

Nifty has gained 8.05% during the week and has closed at 4942. Junior Nifty and Midcap Index gained 11.65% and 8.65% respectively.

There is no change in our analysis though. This week's rise could be attributed to the extremely oversold condition of the market and as a result we witnessed a technical rally. 30 + stocks gained more than 30% during the week.

The top 5 gainers are:

BAGFILMS (50.09%), TELEDATAGL (49.18%), ELECTHERM (47.97%), GHCL (46.91%), RJL (45.25%)

However, these stocks have been thrashed badly from their recent highs and also have made bearish patterns on charts. It is probably worth waiting for some more time to confirm the bullishness.

When stock breaks an important resistance after a congestion or consolidation pattern prices tend to go up; nevertheless, the previous resistance acts as support when the stock declines. Similarly, when an important resistance is broken, stocks tend to rally and try to test the previous support (which is the resistance now). Traders shouldn't get carried away with such rallies and watch from sidelines since it is not possible to determine whether a stock has hit the bottom unless confirmed reversal signs appear on charts.

Winners and Losers during last 50 sessions

noreply@blogger.com (Sundy) — Mon, 24 Mar 2008 05:11:10 PDT

On January 8, 2008 Nifty made a high of 6357 and closed at 6288. Since then, it has lost 27.26% while the other two important indices Nifty Junior and Midcap Index have lost 41.71% and 37.91% respectively.

After 50 trading days, let’s find out which scrips are the winners and losers in the highly volatile and technically what has turned out to be a medium term bear market.

Top 5 gainers:

Horizon Infrastructure: The stock is being traded at NSE since January 25. It has always hit the upper circuit, irrespective of where Nifty was heading. It is currently in ‘trade to trade’ segment. From 82.30 on January 25 it has skyrocketed to 1286 or about 14.62 times. This is however an illiquid stock and the maximum volume ever witnessed was around 186k during a session.

SEL Manufacturing Company: It has gained 87.95% and appears to be technically correct, even though the upper or lower freeze has been hit on few occasions.

Bosch Chassis Systems India: The stock has gained 41.04% and has lost about 11.7% from its highest close.

REI Agro: This stock has gained 41.01% with plenty of upper freezes.

Sun Pharma: It has gained 13.66%.

Top 5 losers:

Kothari Petrochemicals: A penny stock not so long ago, it was trading around Rs.4 during March 2007. On January 7 this year it closed at 80.90. Watch the number of single priced candlesticks and freezes in the chart!

Brabourne Enterprises: It has lost 77.03% and it is almost near its long term support at 23.

Teledata Informatics: It got listed after the scheme of arrangement and three nearly 20% lower freezes has made the stock lose 76.43%

Gujarat Lease Financing: It is a penny stock and has shed 74.79%.

BPL: This has lost 74.76% so far.

Real Estate Stocks : Is it wise to invest now?

noreply@blogger.com (Sundy) — Sat, 22 Mar 2008 06:48:11 PDT

If anyone had invested in land, house or flat, he would have definitely gained a lot due to the soaring property prices. But what about the stocks of real estate companies? The table given below suggests that these have been badly affected by the recent fall in Indian stock markets.

Is it wise to invest in these stocks now? A big question mark, though.

Note that Omaxe, Parsvnath, Kolte-Patil, IVR Prime and Sobha are currently trading below their IPO prices.

Will the bulls be able to win the battle?

noreply@blogger.com (Sundy) — Fri, 21 Mar 2008 00:50:46 PDT

The Indian stock markets are shut between March 20 and March 23, 2008. With the long week end ahead it’s now time to ponder over what can possibly happen to the Nifty and its constituents in the days to come.

The Hindu Businessline reported on Thursday: “The 75-basis point rate cut by the US Federal Reserve boosted sentiments across Asian markets on Wednesday, but the Indian bourses could not sustain gains. Lower opening of the European markets and more bad news such as poor growth in six core infrastructure sector in the domestic market pared early gains.”

Well, the Nifty registered a low of 4469 on Tuesday, just 20 points more than the previous low of 4449 (this number is being watched by most web sites/analysts/traders etc.) While we still don’t see any reliable reversal signs yet on daily charts, one can observe a “bearish pennant” formation, which is a continuation pattern.

To know more about this chart pattern, please click here.

It can be seen from the chart that the pennant formation appears to be very reliable since it has been formed after a steep decline or “pole”. A pennant is a small symmetrical triangle that begins wide and converges as the pattern matures (like a cone) and once the support trendline is broken (in case of bearish pattern) it confirms the breakout. This of course occurred on March 3, 2008.

The technical target for this formation is arrived at after subtracting the pole height from the breakout point; in this case the target works out to 3220.

So, technically the bears appear to have control over the Nifty.

Let’s now discuss some of the index stocks.

ABB: A symmetrical triangle formation is observed and a downside breakout occurred on March 17. The horizontal support was breached earlier on March 10.

ACC: Like the Nifty, the pennant formation occurred on March 3.

Ambuja Cement: A neutral rectangle pattern is observed; however, its support at 109 was broken on March 17 when the stock hit a low of 96.

Bharti Airtel: It formed a bearish “head and shoulder” pattern during January 2008 and the stock is currently trading below the “neckline” at around 840. This neckline will act as a strong resistance when stock attempts move higher.

BHEL: A bearish “double top” formation has occurred.

Cairn: A bearish “flag” pattern is seen. Though the stock breached the upper resistance trendline, it is not all that significant. A close below 207 will confirm bearish breakout.

DLF: It is very bearish and has already lost around 50% since January.

GAIL: “Pennant” formation is in progress; breakout awaited.

HCL Tech: Like ABB, a symmetrical triangle with bearish breakout is observed.

HDFC: A symmetrical triangle was formed and bearish breakout occurred on March 10. It has now broken the previous low at 2200.

Hero Honda: It has closed below the support at 662.30 and one may expect further bearishness.

LT: It is now trading below the critical support at 2957. The bearish breakout on March 10 was accompanied with huge volumes; The stock is headed towards lower levels.

ONGC: Bearish breakout occurred on March 3 after pennant formation.

PNB: The stock closed below the medium term support trendline on March 7. It is bearish in weekly charts as well.

RCOM: A bearish “double top” formation occurred in January and the stock is attempting to test the support level at 465.75.

Reliance: Like Nifty, bearish breakout occurred after pennant formation on March 3.

SAIL: This stock had a bearish breakout when it closed below the support trendline on March 13 with a full downward gap.

Tata Power: Bearish breakout occurred from symmetrical triangle pattern on March 7.

Tata Steel: Bearish flag formation completed and a downside breakout occurred on March 13.

TCS: Bearish breakout occurred from symmetrical triangle pattern on March 3.

With the formation of many confirmed bearish chart patterns in majority of the index stocks, the bears are most likely to emerge as winners in the short term.

Bullish stocks for the week

noreply@blogger.com (Sundy) — Sun, 02 Mar 2008 04:59:24 PST

Crompton Greaves:

After touching a high of 452 during November 2007, this stock has fallen to 265 on February 12. The first wave was complete with the stock reaching 323.90 and then a corrective decline started. On February 25, a near “hammer” was formed indicating that the market is bottoming out. On Wednesday the stock had closed above the previous resistance at 323.90 with good volumes and an upward gap. It has declined slightly after that. However, such declines are only opportunities to enter the market. When the uptrend resumes the stock will face resistances at 378.75 and 407.

Essar Oil:

Essar Oil jumped very quickly from around 50 to 355 in about three months time between October 2007 and January 2008. During the January 2008 stock market crisis this stock fell badly and on January 22 it touched a low of 101.25. However, it has managed to stage a smart recovery since then. On February 29, the stock broke the short term resistance at 254.85 and one can see a triangle breakout on charts. The technical target for the breakout works to be 349.70 which is just near the previous high at 355.95.

KSB Pumps:

Is there “some” relationship between overall index such as Nifty or Sensex and stocks like this one? During the week ending July 6, 2007 this stock touched a high of 650 (close: 594) and for the week ended January 4, 2008 it closed at 444.95. The corresponding close values for Nifty are 4385 and 6274 respectively.

The stock was on an uptrend after it made a low of 296.10 on February 12. The resistance at 357 was broken with good volumes on February 29. One might argue that the consolidation period was too little but since the bullish breakout has been accompanied with an upward gap, we may be worth watching this one. 425 and 477 are the technical targets for the stock.

Varun Industries:

Varun’s IPO price was Rs.60 and got listed on November 22, 2007. It did yield good returns to investors with the scrip making a high of 164.90 on January 8, 2008. It was on a decline since then and on Thursday the previous resistance 96.50 was broken with reasonably good volumes. The stock has technical targets of 118 and 130.