Weak global cues wreaked havoc in the markets; the much touted bailout plan by the U.S. government now seems too little and too late. Too many skeletons are tumbling out of the cupboard, too much muck is still floating around and now this has become an epidemic of sorts with news from all over the world of sick financial institutions either being bailed out or nationalized. There is still more pain left and I wonder if we can get rid of that sinking feeling any time soon.
Anyway let’s take a look at our intraday action by taking a peek at the hourly chart below. We have had almost a vertical down movement from the recent highs. Got ourselves a new low but the last minute rally gave us a decent close for the day. The prices have stretched to far below the MA’s (value area) and now they can only do two things now. First either pullback to the MA’s or drifts sideways and let the MA’s catch up with the price. The overhead resistance is at 3970 and 4050 (a quickie kind of pullback is not ruled out), and as for the bottom anything can happen below 3780.
Today we have made roughly 500 new 52 week lows which are suggestive of widespread panic and a further fall. A panic sale is coming and some shopping can be initiated, I repeat I said SOME shopping like maybe 20 to 25% of the funds can be invested in your favorite stocks.
"You cannot escape the responsibility of tomorrow by evading it today."
With nuclear deal almost under wraps (we might celebrate it once more with a small bounce!) now we are waiting anxiously for the bailout package the U.S government is planning to implement, that should set the course for the moves ahead. Secondly we have our results season coming up, so another trigger on the way. As regards to the churning in the U.S and the so called injecting of steroids (bailout) I wonder how long will the effects last. I am no economist but just as a simple layman I was just wondering, with the U.S homeowners defaulting on their home loans (mortgages as they are called!) isn’t it a probability the next line of defaults will be the credit card payments!!! So another bailout package will be needed this time to save the credit card companies…… another way at looking this is that with all these bailouts and takeovers the U.S. government might just end being the largest real estate owner of the country and also the owner of many of the financial institutes. Capitalists turning to Socialists????. Anyway let us move on and see what our charts are telling us for the next week.
The Weekly Picture:
The weekly chart below, shows that once again Nifty after a brief penetration of the long term falling trend line, has closed below it. Back again inside the channel we are heading to test the lows (3790/3800) again failing to hold on to these might open the doors to 3550. The MACD histogram is still showing bullish divergence, maybe a new low in price is accompanied by even a shallower low in the histogram; giving us a triple bullish divergence! Wishful thinking anyone?
The Daily Drama:
We had a classic H&S pattern which broke down and price did make an attempt back at the neckline (yellow Line) failed and is headed lower to test the lows. The ADX is beginning to move we have a negative cross of the DI lines. Our now oft repeated levels of 4050/4150 and 4250 present a formidable resistance to any move up, whereas failing of the 3800 support might be a nasty experience. In trading many analysts swear by the closing price rather than highs and lows, the argument is that many traders use different types of styles to draw their charts. Some like line charts others candlesticks, some make do with hiekin ashi candles and yet some swear by point and figure. Therefore this makes the closing price very important, and speaking of closing price I have inlayed on the above chart the line chart of prices from JULY’08 to SEP’08 and what do we see? Voila we have already broken the lows of 18th September on closing basis though the actual low is 3799!!!! Just a point for you to ponder!
This plan is based on much of what Dr. Elder advocates and I am deeply influenced by his methods. The main idea behind this plan is to trade short term swings. This plan lays emphasis on trading with the trend and has shades of Triple Screen method. We generally start by paying close attention to the external stimuli and market internals to check the undertones of the overall market. Then we use a wide variety of scans, which one is comfortable with to zero in on the scrips worth trading. This plan lays equal stress on strict money management. Though this plan may sound too boring or appear too long but I feel a trading Plan is essential for the survival of a good trader. All care has been taken while devising this plan to embrace the element of KISS! So here it goes;
1.The Market Internals.
Here we tend to look into a few indicators that show the overall breath and underlying strength and weakness of the general market. There are plenty of such indicators that one can use, I am particularly tryin2limit my list to just a few.
A.Vix: Vix is a volatility index. This is based on the activity of option traders. Vix is a contrarian indicator. Any readings above 35 suggest extreme pessimism and used as a buying opportunity. One should book profits when Vix is nearing 18 on its way down.
B.New High New Low Index: This is created with New Highs-New Lows. This is a very important indicator. It signals important turns in the market when it diverges from the Price. One can also use A/D ratio for the same purpose.
C.Open Interest: It pays to monitor Open Interest. Monitor the changes in Open Interest. Keep a tab on the puts and calls. The max Open Interest in particular calls and puts is suggestive of the resistance and support the scrip is likely to encounter. Along with Open Interest keep a watch on the PCR.
2.Scans For Choosing The Stocks To Trade.
There is a wide variety of scans one can choose from; again this is a matter of personal choice. I like to use;
Price Volume Breakout
MACD Divergence
Triple MA Crossovers
The Visual Scan (patterns etc); I consider this as the most important!
Whenever you run your scans the list needs to be additionally filtered by running the Relative Strength Comparative (RSC) and ADX filters. The idea behind such filters is that we want to zero on the scrips which are outperforming the Index and are showing strength (RSC). The ADX filters those scrips where the trend is strong and the move will be fast and strong. Again I repeat why we use such filters is that we want to get into the scrips which are ready to move immediately (ADX+25) and are likely to outperform (RSC).
3.Chart Analysis.
Armed with the list of scrips we now move on to Chart Analysis. First on our list is;
Monthly Chart. I use Monthly Charts to see the broader trend and some major support and resistance areas.
Weekly Chart. This is very important from the point of view of a Swing Trader. Weeklies are the first things we look into. In here we identify important S/R levels. We look at patterns if unfolding and general Pivot Points.
Daily Chart: This is used for action. In the daily chart we look for Swing Highs and Swing Lows. We also pay close attentions to the patterns. Judicious use of MA’s and Trend Lines intimate us of future S/R levels.
Hourly Chart. This is primarily used for the purpose of fine tuning our entries and exits. For a Swing Trader this particular chart is of no major importance but for the Day Trader this is the most important chart.
Since we are dealing here with the charts, it would be prudent to bring up the topic of indicators to be used. I personally feel the choice of Indicators is a personal one. Use what one is comfortable with. Personally I like to overlay my price pane with 20/50/200 EMA,s. A price Envelope, to identify targets. The Lower panes are occupied with RSI/MACD and Stochastics.
4.ABC Rating.
Once our chart reading is over we yet again rate the charts in the order of their priority. We rate them on scale of ABC. A stands for high probable trade that we our likely to take the very next day. B is for a trade where we think that the trade needs to be worked upon for sometime before initiating an entry into it. C is for the trades where we can see some major patterns unfolding. The trade looks promising but needs time to develop; hence patience is required to let it ripen before we taste the fruit.
5.Taking The Trade.
This is where all the above leads to. Pulling the Trigger. Books have been written about this but I would rather keep it short and sweet. TRADE IN THE DIRECTION OF THE TREND. We only initiate our trade when our Daily Chart is in sync with our Weekly Chart. Anything contrary is sacrilege. After doing all the above exercises we do not want to blow it up by going wrong in pulling the trigger. Even the best of trade setups go awry if we jump too soon. It is said there are three very important rules that can give you the best entry in the world. These rules are Patience, Patience and more Patience! While speaking about taking the trade one of the most important things before initiating the trade is defining of the following; the Entry Price, the Stop Loss, and the Exit price. If you are unsure of any one of these three you are not allowed to enter. The next step after entry is to monitor the trade and take profits when target is achieved. Here if one feels that the target is likely to be overshot then one can use trailing stop. Another golden rule GREED IS GOOD but never ever let your winning trade get into a loss. Love your losses so much that you want to take them as soon as they occur!
6.Money Management.
This pertains to most what Dr. Elder teaches. Never bet more than 2% on a single trade. Never loose more than 6% of your capital in a month. Very simple yet hardest to follow. This is the HOLY GRAIL. If you have mastered this then you are THE MASTER!
7.Organized Trader.
This lead to the finale where all the above ends! Yes the very important part The Documentation. Every trade needs to be carefully documented. Every chart needs to be marked and saved. Every lesson learnt every moment of Glory, every moment of Despair needs to be saved and well documented. This forms the foundation on which you will build your successful trading career.
This is the gist of a good trading plan. This is not a final plan coz there can never be a final plan. We change with times things change there will be changes or rather should be changes in this plan as we move forward in our journey. You need to make a plan that suits you, a trading plan is like a well-fitted suit, every individual has different styles but the basic structure stays the same!!! I am tryin2implemnt my plan, if you have any further additions or refinements to the above then do let me know.
Stuck in a range Nifty is looking for direction or rather I must say making a base for the next move. At the risk of being repetitive, the status quo remains, the cues from the world market will define further moves. We don’t have any strong domestic triggers as of yet, and most will find it is prudent to wait till the exact picture of the U.S bailout is clear. Writing off a few trillion here and there might be just a stroke of pen for the government but it definitely going to have a greater impact on the people. Nothing is gratis; the bill will come later and it will be huge!
A brief dekko at the intraday action, the hourly chart below shows the signs of struggle the price is witnessing at the confluence of the 20 and 50 periods EMA’s. It is also stuck in a range between the 23.6% and 38.2%retracement levels. 4050/4000 is the ultimate levels the bulls need to protect, whereas for now 4100/4115 are good supports. A break above 4185 can take us to 4250 which to me looks like a formidable resistance now. Any further upside targets should be calculated only once we conquer and close above 4250!
Nothing much changes in the daily chart too, we have 20/50 periods MA’s providing resistance at 4275/4305 respectively. The support on the way down is at 4050.
For a nimble intraday trader there are many opportunities during the day but if day trading aint your style then better be on the sidelines. The huge volatility and so many gap ups and gap downs is sure enough even to shake the most seasoned traders. Speaking of volatility, tomorrow we might have plenty of it, because of derivatives expiry and also the inflation figures that will come after market hours
RIL has come out with a very important statement yesterday. It struck gold (crude) in the K.G.Basin. A very positive development as the company claims that this will reduce our energy bill drastically. Well so be it! But as a trader we aint interested in news we are interested in charts and in what the charts might be revealing. A quick glance at the weekly chart first, to be followed by the daily chart.
The Weekly Chart
We had three lower lows in RIL weekly chart and all the three were accompanied by three higher lows in the MACD histogram shown in the lower pane! Yups it is indeed bullish divergence on the weekly chart and a good one too. The price has drifted back to the value zone and the last impulse bar is blue removing the ban from going long. 1950 is a good support on weekly chart.2120 offers some strong resistance, a weekly close above 2250 is the signal for the bears to leave this counter alone.
The Daily Chart
The daily chart also conveys the same thing. The price is nesting at the value zone, for the aggressive buyer a buy can be triggered above 2075 and for the conservative, above 2120. The targets suggestive are 2250/2350 and a meaty 2650! We have done the 23.6% (2030) retracement (Nifty is yet to do this leg) from the lows of 1765 to the highs of 2110. The 38.2% at 1980 is another possibility which the price can test; personally this would be The Ideal place to go long with a very tight stop below 1950, a real good risk reward set up.
With the volatility we witnessed in the last week, most of the stocks have had bullish divergences; these signals though very potent also do fail sometimes (The Hounds of Baskerville as explained by Dr. Elder), therefore it is very important to always wait for price confirmation and even more important to be very particular about your STOPS!!!
Last week was spent amid much volatility and Nifty needed a pause, a breather. Any more gap ups or wild up moves would have been seriously detrimental to the bulls. In my last post I had mentioned 4300 to pose as resistance as there was convergence of 20/50 periods MA’s, today’s high was 4303! The almost vertical moves we saw in the previous two sessions resulted in short term oscillators going crazy; from OS to OB in a matter of few hours therefore these kind of breathers are required to bring them back to normal.
The hourly chart below encapsules the intra day action; we have a HH in place. The overhead resistance is at 4270/85, and immediate support in the form of converging 20/50 periods EMA at 4165.
The daily chart below has no new sight to offer. Like mentioned earlier we reacted to the 20/50 periods MA and took support at our long term falling trend line. Though there is a good likely hood of Nifty retracing to 4180/90 a 23.6% fib retracement from the low of 3799 to 4303. Just a passing thought we have had a crossover of +DI and –DI, all we need is now ADX to show some strength.
Hmmm…. What a week! A week full of chills spills and thrills...a rollercoaster ride of a lifetime and a valuable lesson testing the grit of the best of the best traders. The week started with a lot bad news, the markets reaction to such news was what normally it should have been but the higher powers (THE GOVERNMENT) intervened and tried to change the course of things. Did they succeed?...Yes the rally that followed the mayhem is the proof of it. So is it the good news?...Nope this in fact is even more detrimental to the functioning of free market mechanism in the future. Markets as they say discount all news, Markets have a mind of their own. Their own free will and that’s what’s makes them exciting and challenging. All this interference with curbs on short selling and trying to alter the conditions of the free market is going to be short lived, as the adage goes “You can’t push on a string”.
Well let us leave those deliberations to the people who are smarter than us, as traders we should just concentrate on our charts and our STOPS! As usual we start our analysis with;
The Weekly Picture
We have had a 14 point gain on weekly basis and also got ourselves a Dragon fly Doji, a bullish pattern if found at market bottom. The double bottom on weekly chart is accompanied with bullish divergence on the indicators. Now whatever the trigger is for this rally or however shallow it is, this divergence is telling for now we are going up. We have a good support at 4000/4050 and the over head resistance for now at 4350/70. Above that a retest of 4650 is not ruled out.
The Daily Drama
The latest bar on the daily chart above is nicely nestled between the two most discussed levels of ours 4050 and 4250. There is a convergence of the 20 and 50 periods MA’s at 4300 which in normal circumstances should pose some resistance or at least stall the price for sometime during the course of intra day action. But considering the crazy gaps we are doing now day I won’t be surprised if we surpass this level also by a virtue of a gap open. But then again so may gap ups is really not a good idea, it really doesn’t talk much about the strength of the bulls but rather gives an opportunity to the bears to strike with vengeance.
The Hourly Break
We have almost had a vertical rise and logically we should rest and resume the journey up. Immediate resistance staring at the price on the hourly chart is the 200 periods MA at 4280 approx and something major at 4370 where we can see a sort of trend lines meeting. Whereas the support cushion provided by the 50 and 20 periods MA’s is at 4150 and 4100 respectively, but personally I feel 4200 will do a good job just as well.
Overall like I said a very volatile week it had some sore losers, some fantastic winners among traders. This reminds of a quote I read long time back on perspective “Two men saw through the bars; one saw the dust the other stars!”
Btw I had twisted a word here and there in the original song Sinnerman by Nina Simone. A remix version of the song is worth a watch.
The weekly chart below, I have marked with two Fibonacci retracements, the blue dashed lines are drawn from the January 2007 bottom to July 2008 top and the one in red dashed lines is more recent one from the January 2008 bottom to July 2008 top. First a look at the current price, its way down the value (MA’S) zone and needs to pull back or stall so that the MA,s can catch up with it. Secondly we can see that the price has retraced below 38.2% level of the move from Jan’07 to Jul’08. 50% retracement level at $98 is a good weekly support. It has also retraced below 61.8% level of the move from Jan’08 to Jul’08. There is a confluence of two fib lines at $110 which is likely to pose strong resistance or at least slow things down when crude reaches there (actually with crude one can never really tell when it slows or flies!!!). Above that we have MA’s converging near the $118, a logical target for a pullback. The MACD histogram below has traced a multi year low; suggestive of price going down in the near future, maybe a test of January lows of about $85?
The daily chart below is hinting about the pullback we were just discussing above. Here also the price is way below the value zone, the impulse bar has turned blue, time to cover shorts or tighten the stops on shorts. The MACD histogram has traced a bullish divergence, suggesting that the bears are loosing some steam. Crude can pullback to its value zone (the MA’s) at $110 or better still go up and test the multi year Uptrend line (now resistance) near about $115/117 which is once again as mentioned above is also our weekly resistance.
"The person who says it cannot be done should not interrupt the person who is doing it."
I have been keeping busy now days because of my primary business interests and not been able to post regularly, still doing the best I can. Anyway moving on to the business at hand; quickly and briefly analyzing Miss Nifty!
The weekly chart below shows we have closed just near the 50% retracement of the move from B to C. We have also closed below the long term down trend line made from January highs. 4130/50 look like good weekly supports, below that 4050 is one level to die for, whereas immediate resistances are at 4250/4270/4315.
The daily chart has what now everyone is talking about; a bearish H&S. The neckline near 4200 needs to be violated and we need to close below 4150 for two successive days for the pattern to play to its logical target. It is said that the market does the most expected thing in the least expected way, so will it play the H&S or negate the pattern, or better still frustrate both the bulls and the bears before choosing a direction. Remember patience is the key when forecasting patterns and their play, and more importantly one should always wait for confirmation from the Price! ADX is still flat thought the +DI and – DI lines have started to converge for a crossover. If we open flat or a lil bit negative and trade above 4200 then one can go long with a tight stop below 4150, and if already short then 4320 is a very conservative stop as of now.
Nifty is totally directionless, it’s just doing what the global markets are doing; no internals are working for us as of now. Traders are wary of any aggressive positions, otherwise why we would have a sell off on Friday when our inflation numbers had improved, our IIP numbers were good, during our trading time Asia had closed in plus, Europe was up and DOW futures were also in the positive!
"Life is just a blank slate, what matters most is what you write on it."
Christine Frankland
Hmmm same is with the charts what matters is how you interpret them!!!
Giving up all the gains following the weak global scenario, Nifty is testing important supports. Yes IMPORTANT supports! The daily chart below shows Nifty is just a wee above important support of 4250. Actually anything above 4225 is hope for the bulls and below that is nirvana for the bears. Nifty has closed in the vicinity of the 50 period MA and at the long term down trend line it had conquered earlier. I have superimposed on the chart for simplicity, what exactly the shaded pattern looks in isolation sans all that clutter of trend lines. YES it is indeed an H&S formation, but it only gets confirmed when we break the neckline decisively and trade below 4200! One important point to be noted here is that though we can see the H&S formation in the making, it is never prudent to preempt any formation till they are complete. In short always wait for confirmation from the price action. A mistake many of us novices make is to get excited and pull the trigger too soon. The Daily now has clear resistance back at 4370 and 4450 and immediate support in the 4225/50.
The hourly chart has broken the previous pivot low and made a new one. The MA sequence is nicely lining up at the all important 4370 where the 200 period (red Line) is waiting for the 20 (green) & 50 (blue) to join the party. A quick pull back to the MA’s is not ruled out, though hourly suggests going onwards till 4100. Overall Nifty is now very weak and needs some very strong domestic triggers to pull her up.
Nifty is getting boring and frustrating and even a pain to write about on daily basis as there is nothing much happening (remember how I kept on harping about ADX in last couple of my posts). The major make or break levels are marked so I guess as the pros say Patience is what one needs. We are witnessing intra day volatility and price is compressing more and more waiting for that one decisive breakout!
The daily chart below epitomizes the compression of prices I was talking about; we have made two inside bars in relation to the bar we made on the 8th of September. As of now we are back in a range and now the highs and lows of the 8th September bar needs to be taken out decisively on either side. We are desperately managing to hold on to the 20 periods MA. As of now 4370/50 is back in the reckoning as strong support whereas the 4450/80 is the resistance zone.
The hourly chart below has the HH and HL sequence on as of now, but what’s more worrisome is that we are breaking one trend line support after another. On the hourly chart the price is just nesting above the 200 periods MA and last major trend line support is at 4320/25 area!
Like I had always mentioned that now days we are just acting or reacting to the global markets, so it’s increasing becoming difficult for a trader to take a correct call. With so many gap ups and downs it’s only prudent if u play intraday (I know easier said than done with so much volatility around) or just sit patiently on the sidelines, do some research, refine your system, or simply take a break.
"The future belongs to those who believe in the beauty of their dreams."
ONGC is one of my favorite stocks; this stock is often used by the operators for Index management when RIL is under stress. I have been repeating often for any rally in Nifty to be sustainable the KING (RIL) has to show the moves. So far RIL has only shown signs of stress and ONGC has been shouldering the responsibility of carrying NIFTY to a certain extent, but now I feel ONGC needs to rest and take a breather. A very quick analysis I will do and see if I can come out with some logic behind by thoughts.
The Weekly Picture:
A nice inverse H&S on the weekly, signaling a breakout above, 1135/50 on sustainable basis. The flip side is that the price is way above the value area (the MA’s) so if already missed the train, no point in getting in now, better to wait for retracement back to the value zone. Also noticeable is the decrease in volumes, ONGC is looking to go back and retest 1040 and 1000 to cement its position.
The Daily Drama:
Here also we can see that the price has reached its logical target the upper channel line and now looks to retrace to its values zone between 1040/50. There is a negative divergence building in the MACD histogram. Another noticeable thing is that we have a very steep up trend line (drawn in pink) which is unlikely to hold. A break of this trend line doesn’t mean a change in trend (that will only happen if we trade below 950), it can just mean some sideways consolidation and making of a shallower and a stronger trend line.
The Hourly Break:
Here also we see that the price has retraced after touching the upper channel line, making a multiple top. A huge negative divergence I MACD histogram, though the MA’s suggest a support at 1070 but real support is in the form of the two converging trend lines at 1040!
Below is the RS chart, see the blue line in the lower pane, that’s the RS line of ONGC vis a vis Nifty. This line has been rising since June, see the gradient of the trend line on the RS, it looks unsustainable and hinting that in the near future ONGC needs to pause for a while.
Am I bearish on ONGC? Nope I won’t short it here but would rather look to enter this beauty on retracement.
Trading is nothing short of speculation and people who treat it as intelligent speculation have a fair chance of doing well.The posts in this blog are nothing but notes I am making for myself. I welcome serious discussion on TA from like minded people and willing to share whatever little knowledge I have of TA. Nothing on this site should ever be interpreted as advice, research or an invitation to buy or sell any securities.
TRADE LESS TRADE SMART!!!
Hit me with brickbats at mbhagra@yahoo.com
