Nifty Index updated on 14 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in a new window.
Just when we had smugly thought that the market is behaving exactly as expected, it turns around and upsets the cart. On Thursday I had made a wistful statement, “why can’t the markets behave as expected everyday?”
Avid index watchers would certainly turn around and say, “on the daily data released by the NSE, we do not see a lower bottom.” And they would be correct. Basically, I have filtered out the opening spikes which allow the charts to be slightly skewed, and have considered the data where the Nifty has actually been traded.
With Friday’s data in, it is very apparent, that the Nifty has finally broken the rising blue trendline. On its recovery path up, the same trendline has exerted resistance. The crack in the Nifty Future was even more pronounced than the Nifty Index. Further, what makes it seem even more bearish is the fact that the Index has gapped down, or what is termed as a falling window. Therefore, the projections of Thursday could be discarded for the time being.
As is a fact, a coin has two sides, so we will look at both the positive and negative aspects of the market.
The recent highs on the indices are not accompanied by volumes. This could be an indication that there has been no selling climax. On the other hand, volumes are rising on the Nifty Futures, and open interest is shooting through the roof.
What does that tell us? Things are not really what they seem to be. In all probability, there is a large scale arbitrage game being played between the cash and the futures.
So how could we trade this?
We could keep 3057 as a benchmark, where we could buy on dips. On the higher side, we could retain the 3200 level as the high mark to sell.
If the Nifty is unable to cross 3200 within two or three days on the upside, then we can assume that the uptrend has indeed terminated at 3200.
A closing below 3080 could further intensify selling pressure, which could allow the Nifty to test 3057 and 3025. Personally, I am trading with extremely tight stops, and my exposures are all hedged.
That is the only prudent way to go, when the market moves up 2% one day and 2% down, the second.

Nifty Index updated on 13 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in a new window.

I would like to place on record, my humble thanks to all readers who “congratulated” me on yesterday’s analysis on chat. Also, the lone reader who has placed his comments on record. While being deeply satisfied with the way the market panned out today, I also felt a twinge, “why can’t the markets behave as expected everyday?”

The market moved just eight points above 3200. Exactly as anticipated.

The Index low was 3149, just nine points above the 3140 level, what was suggested yesterday.

If you have missed reading yesterday’s analysis, look for the link on the right column, labelled “Nifty Index updated on 12 July 06”.

If we zoom into the last couple of days, we see that so far, the Index is playing out with higher tops and bottoms. If we project the amplitude of the last couple of days, we see that the Index took support – exactly near the 38% retracement level, labelled point A. It overshot the previous swing high and faced resistance exactly near the 161.8% level, labelled point B. And again, it seems to have taken support today above the previous swing high at point C.

Considering these movements, we could project two upside levels near the 3245 and the 3295 levels. Mind you, these are not the Elliott Wave method of labelling, which I have annotated on the chart.

Therefore, readers could remain on high alert at these levels, and manage their trades accordingly.

And as always, trade happy.

Nifty Index updated on 12 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in a new window.

It does seem that the charts have followed the markets pretty well. The opening 30 minutes were hugely volatile as can be expected, with the shadow of yesterday’s terrorist events. The rising blue trendline was tested, where nervous bulls were shaken out.

The results of the bellwether, Infosys, ultimately pulled the day in favour of the bulls.

The short term (red) down sloping trendline was also retested on the hourly charts twice. Ultimately, the bulls prevailed.

Maybe these are a bit of philosophical ramblings, but as the heading says, these are my personal musings, so I will go ahead and take the liberty of talking a bit out of context of technical analysis.

During the entire day, I was getting euphoric messages that the Indian Stock markets have given a befitting reply to the terrorist attacks. However, before getting patriotically euphoric, let us look at the chart once more. It is telling us that the Nifty has come back into the same zone, where we have witnessed large scale profit booking earlier.

Therefore, it could be prudent to assume that we are going to see the same roadblock in the advance of the Index. However, as usually happens, generally euphoria makes the targets to be overshot. Therefore, it is my assumption, that the Index could face its first resistance, a few points above 3200. Then there could be a correction, which could allow the Nifty to then correct to the 3140 levels.

Bulls who are waiting on the sidelines could use this opportunity to enter long for the short term.

And as is usual, in such volatile markets, stops should be adhered to, to avoid calamities.

Summing up, it may be said that the longs have a better chance to be profitable.

Update on 11 July 06

The indomitable spirit of Mumbaikars is saluted. What more can an angry person say against this unnecessary death and destruction?

Mumbai tujhe salaam. (For non Indian Readers - Bombay I salute you)

Dusant

Nifty Index updated on 11 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

One of my well-wishers contacted me off this blog, and made a statement to the effect that the market is following my charts. For which I could only respond by saying that the markets do not follow the charts. We use the charts to follow the market.

Given the weak global cues, the markets did open weak, and kept following the down sloping trendline. The positive thing is that the markets did not just surrender to the bearish pressure. It kept its head above water. As long as the Nifty remains above the blue line, it makes sense to remain with a bullish view.

No doubt, the turnovers were low. That can be explained by the fact that major players would be waiting for the results of the big daddy of Indian markets, Infosys.

The blue up sloping trendline is still holding the price. Even though the trend for the day was weak.

In any case, we have not witnessed the aggressive hammering, which normally is associated with extremely negative sentiment. Further, from other studies, we also see that the sentiment is already deeply negative. And normally, we do not see the market tanking when the sentiment is already at a low ebb. At present, the market still seems on course with its tryst with destiny.

Keep your trading plan in place, and be prepared for unpleasant surprises, as we had in the case of Hero Honda today.

Nifty Index updated on 10 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

It was a foregone conclusion that the market would strengthen today, given the fact that it had tanked on Friday on false rumours.

Just goes to show how the market abhors uncertainty.

Anyway, as can be seen from the chart, the market did hold on the second line of defence and rallied forth. It has indeed clawed back into the congestion zone, where it has spent quite some time.

A short term retracement level placed at 3157 could be the first pause the market could take. A minor trendline at 3182 could be the second level where the Nifty could face stiff resistance. This level of 3182 also coincides with a 333% projection from a minor pivot.

Therefore, it could be suggested that traders could remain on high alert around that level.

If this trendline is violated towards the upside, then we could look at 3214. With such volatility still prevalent; it is always advisable to play the derivatives with hedged positions. Cash investors could commit small percentages of capital on diverse stocks and have a predetermined exit plan.

Trade happy. That way you make lesser mistakes.

Nifty Index updated on 07 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

As suggested yesterday, we did see some strength in the opening. However, as the day progressed, we saw three events, which confirmed the weakness.

One was the downside violation of the short term (thin blue) trendline, which was holding up with higher bottoms all this time. That was our first warning signal.

The second alarm bell was the simultaneous violation of a longer term (thick green) trendline.

The third was that it has made a lower top.

These three factors put together allow us to conclude that the short term up trend has come to an end.

I have been visually carrying the stops, which bulls could have adhered to for the whole of last week.

Now the flip side. There are two positives for the Nifty.

One “ray of hope” for the Index is the second line of defence (thick blue line), which is still holding. However, this trendline may not help too much.

The second is that the almost parabolic pattern of this sharp fall. After this kind of a fall we may expect a minor pull back to the upside, but that will only encourage bears to come out with full force and initiate fresh shorts.

Here is what may happen on Monday. The market could open weak, at around the 3000 levels, which will trigger a lot more stops of bulls. It could then retrace upwards. However, it seems unlikely that bulls who have taken long positions on Thursday and Friday could get exits easily.

On the other hand, if the market opens strong, bulls could exit their losing positions, with minor losses, and sit back and evaluate what went wrong. And then ... plan for another day.

Which brings us back to a very important point, which I am very fond of repeating again and again … plan your trade and then trade your plan. Before initiating a trade, answer two simple questions … what if I am right? … what if I am wrong?

Nifty Index updated on 06 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

Yesterday, in my last paragraph, I had mentioned that there was a cycle in time that occurred yesterday. Which led us to the possibility that yesterday could be a short term top.

Indeed, the market reacted with weakness. But the force and the momentum of the weakness has not been strong. We also see that the Nifty still has not violated its previous swing low.

The Nifty also reacted rather smartly from its lows. The manner in which it moved up suggests that we may find tomorrow resuming the up trend. We could then count today as a breather pause.

If the reader “zooms” in to the last two or three days, we see that a minor trendline in blue has still not been violated. The Nifty also has remained above an earlier swing top, which was earlier exerting resistance. Now it does seem to be providing support.

If on the other hand, we see the weakness extended tomorrow, then we may assume the intermediate trend has turned down. Of course, the weakness has to be confirmed by violation of earlier swing lows. In case the earlier swing lows are not violated, we will assume the trend to remain up and approach the market with long point of view.

Using other analysis techniques, we see a relatively large build up of short positions on the Nifty futures and options. Since the exchange does not release data for long or short open interests, we cannot pin point whether long positions have booked profit and exit, or fresh shorts have been created.

Either way, we find that, suddenly, the majority in the market have become pessimistic. And as we all know, most of the times, the majority are proved wrong.

Therefore, we may expect that the uptrend could be resumed to our earlier projections.

Nifty Index updated on 05 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

Yesterday, it was stated in this column that the Nifty was expected to move downward in a ranged move till mid session. How wrong the Nifty proved me. It did open weak, but spent very little time regaining strength and powering itself up 50 points in an hour.

The bearish blood seems to have been eradicated within the first five minutes. On the face of it, the Index was extremely positive. It did all the right things to retain the bullish flavour.

Midway, it encountered the red trendline and collapsed a good 40 points. On the way down, it tested the earlier swing high, and also rested on the fibonacci level. After that, there seemed no looking back, and it went and retested the red line. The manner in which this particular trendline is offering resistance, the Nifty needs to do something very spectacular to break out from that region.

So far, the Nifty seems still on course to its projected level of 3250+. But the effort required now will be huge.

Depending on how the market approaches the overhead resistance levels, we could draw up our further strategy.

As of now the ideal thing would be to keep using swing lows as trailing stops to book profit.

While trading, it is also advisable to look at the other side. On the flip side, there is a cycle in time occurring today. Normally these cycles in time are pretty accurate to within one or two days. In that case, today or tomorrow could turn out to be exhaustion days. Therefore, as a short term trader, I would be extra alert tomorrow, especially with my trailing stops. Also, I could be tempted to add to my longs on a substantial breakout, but only with hedged positions.

Nifty Index updated on 04 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

Another steady day in the markets, albeit, with a downward bias. Today the Nifty extended its closing weakness of Monday. The movement of the Nifty seems in the nature of consolidation rather than the beginning of a downward movement. We may see tomorrow continue downward in a ranged move till mid-session. After which, the probability seems high that the Nifty resumes its upward movement.

From an extremely short term perspective, a nervous trader could have closed long, as the short term trendline has been violated. But a trader with a slightly longer term horizon could still have remained long. The previous swing low of 3115 has still not been violated. Possibly it could be tested tomorrow.

As of now, the Nifty remains a “buy on dip”. The projections from the 2600 low suggests that we may see the Nifty achieve the 3250 level.

At this point in time, there is nothing to suggest otherwise. We could change our mind when we see how the index behaves at the previous swing bottom.

Nifty Index updated on 03 July 06

As usual, first the disclaimer: This is not trading advise. To view the full sized pictures, right click on the thumbnail and open in a new window.

After the spine tingling excitement of the last fortnight, today was a rather ho-hum kind of day.

The movement was upwards biased, but the gut wrenching intraday volatility was thankfully missing. As a result, the volumes were quite low. The momentum of the Nifty’s movement towards the upside is also slowing.

Apart from my usual price chart with the fib levels, I am also uploading my regular hourly chart, which is based on indicators devised by me. I take cues from this chart to get an overview of the market. On the hourly chart, we have not seen any weakness as yet. The oscillators and indicators are both pointing to the market being overbought for the short term. That does not mean, that we go out and short the market tomorrow. As a trader, I would await a confirmation and then only close my longs. I would short the market only on the breaking of lower support levels.

As of now, it does seem that the Nifty still has steam for another 50 to 100 points upward, in this round.

Traders must decide their time frame to approach this market. Those among us, who make repeated attempts to “catch” the top, are sure to lose money.

It does seem that the Nifty is hammering away at the red supply line overhead. And since the supply line is rising, it seems positive for the Index.

Since the present trend is still up, stay long, till the Nifty breaks some important support level to the downside. The support level must be decided by traders, depending on the time frame in which they are looking at the market. I would again repeat, as abundant caution, please do not try and attempt to short what seems to be a peak.

Nifty Index updated on 30 June 06

As usual, first the disclaimer: This is not trading advise. To view the full sized pictures, right click on the thumbnail and open in a new window.

I am glad that I had suggested readers to remain long. From a fundamental perspective, I thought that the hype and hoopla about the FOMC rate hike was overdone, and world over, markets were being traded in an uncertain manner with a bullish bias. India had a double whammy, with the derivatives expiration also on Thursday, 29 June.

And as is the case, when the event is aside, the markets heaved a collective sigh of relief and got back to business as usual.

From the technical aspect, on the hourly chart of the Nifty, we have not seen a significant swing low, which is below a previous swing low. The few retests of the lows are not really significant.

On 10 June, I had posted this chart at this address: http://tinyurl.com/owkqo.

It was expected that the Nifty could bottom at the 2700 levels, and then retest the 3100 levels. Subsequently, the Nifty went down to around 2600, and threw that chart out of the window. Later, the Nifty had violated a previous swing high by going up to the 2950 levels, which also coincided with a fibonacci cluster. Which tells us that the short-term trend had changed for the positive.

After that, we have not seen any substantial weakness. This type of move, when viewed in isolation, is bullish. However, I still am of the view that this 500+ points move is an upward retracement to the sharp fall of May. This type of market normally does not allow the bulls or the bears to make money, unless we take a slightly longer-term view.

So how could we continue trading this?

Today, the market opened (almost) with a gap, had a minor intraday retracement, which tested the previous high of 3068. The positive about today’s market was that it tried to close the “gap” of the opening, and stayed above the two resistance levels as marked out on the chart.

If we just glance back to the beginning of this month, we also notice that the Nifty had traded through a zone between the pink and green lines. That zone is marked on the chart as “earlier congestion zone”. Today, the Nifty has moved beyond that zone, and taken a first hesitant step above the dotted pink line.

Such a close at the end of the week, will not only make the end of day chart, but also the end of week chart look pretty bullish.

And we have been raising our objectives for the Nifty, as it takes step by slow step.

Now let us look at the flip side. The Index had taken 34 calendar days (24 trading days) from its all time high to the last bottom. It is 16 calendar days (12 trading days) since the bottom and it has not even retraced half of the loss.

That does not inspire too much confidence in this bull move.

Which brings us back to the original question – how do we trade this? It all depends on the time frame you are looking at. Keep booking profits on substantial rises, or sit tight, and keep raising stops to lock in profits.

And as I am fond of saying, trade happy, and you avoid mistakes.

Nifty Daily chart as on 29 June 06

I had received a request to post the daily chart on another group. So here it is. To view the large picture right click and view it in a new window.

Nifty Index updated on 29 June 06

These are my musings and not trading advise.

If you want to see the full sized chart, right click on it and open in a new window.

I missed posting out my analysis yesterday. Today I have decided to post my musings on a blog rather than send it out by mail.

The Nifty seems to be now moving in a consolidation zone. Today it hit a higher roadblock, on the levels which I have been carrying for the last couple of weeks.

So far we still seem to be in an uptrend from 14 June 06. The Nifty tried hard today too, to make a higher top, which could violate the top on 25 June. As far as a test is concerned, yes, it is a failure on the hourly chart.

But it will only be confirmed as a failure, if the Nifty violates the previous bottom of 2900 made on 27 June.

Till then, I am considering long trades.

As we move further in time, the objective which I have been carrying for a few days, looks more distant than ever. As of today, traders do not seem to be in a mood to commit to anything aggressively, with the uncertainty of the FOMC meet around the corner.

Banks look like they would underperform as the Index suggests. IT stocks could hold their own.

Trade Happy. You make lesser mistakes that way.