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A Turn For The Better?

A turn for the better?

EXECUTIVE SUMMARY

  • After about a day and half of declines, the markets take a turn for the better with some strong intra day advances on Tuesday.

  • As expected, Banks fared better and led from the front and the Bank Nifty is already into a buy mode at the end of Tuesday.

  • Follow thru action in the Nifty futures today, by staying above 8285, would signal continuation higher in the market.
  • Midcap index revival is also a good signal that the buyers could be back. Can track that space for action today and ahead.

INDEX TRADE SUMMARY

  • The good revival in trends yesterday led to a buy signal emerging in Bank Nifty around 18000 levels. It continues to remain a buy at the current levels too.
  • Nifty future is a buy above 8285 with a stop below 8200.

STOCK TRADE SUMMARY

  • Check out Fed Bank, Auro Pharma, Ashok Leyl, Maruti etc for trading today.

INDEX REVIEW

It was make or break and for the first two sessions (or one and half, shall we say?) the bears took the game away from the bulls. Pushing down strongly, the Nifty future broke below the 8200 level as well, reaching a low at 8193 before some recovery from the lows pulled index up some. Not too much but one is a lot more enthused with the evidence at the end of yesterday. It does seem like we have some hints now that the market may be ready to stage that rally. Lets take a look at the chart of yesterday. This chart is annotated with different tools. The decline hit the Fibonacci 127Ext. level of the last contra trend move, signaling a possible low under formation. This low has been confirmed by the Pitchfork tool that shows a perfect bottoming on the median line. Using an esoteric Gann technic (not shown on this chart), the low is also on a 225 degree relation from the March high of the Nifty future. The inability of the cycle to expand downward can be considered a positive signal as well. So the price action is clearly suggesting a low having formed.

NE29041
In the chart, I next added the Bollinger band to check whether I am getting any volatility divergence and lo and behold, there it was! Nice. Now to tie this in, I used the momentum indicator Rsi and find a nice divergence (Class 2) developing. Finally, another piece of evidence (though not on this chart) is that the prices have dropped down to near the 200 dma on the daily charts after a long period of about 15 months. Typically, the first big drop into this long term average is always to be used as a buying opportunity. So clearly these are together indicating a strong low getting into place.

To confirm this and to track the actual trade that may emerge out of this, the second chart (hourly) is offered. Here too I find that the momentum indicators are signaling a divergence pattern on the Rsi as well as showing a volume based flip to the positive on the EOM indicator. On the price chart, I have added a modified pitchfork to track the final downleg and find that the low of 8194 was on the median line of this pitchfork and the recovery from there has risen to the top channel of the pitchfork. Here too I have added the Bollinger band to check for the same volatility divergence and find such a pattern present in the intra day chart as well! So, the stage is quite set now for some upward triggers which will be if the prices are now able to trade above the pitchfork on the intra day chart and hold above it.

 

Now the situation is thus. If the nifty fails to move higher and starts trading below 8200 then that would probably be the negation of the evidence collected above. Break of the last swing low at 8194 would also put paid to the expectations of the price cycle running out. Thus the lower end is clearly capped at 8200 and we should set a stop there on any longs. On the upside, a move above 8300 would continue the progress commenced yesterday and seek to build on that. The last swing high is at 8535 and would be the first natural target. Question is, can this be reached? My view on that is positive. I believe with lots of positions liquidated, buyers more on the sidelines, bottom fishers probably bailing out in the rally of yesterday and continued presence of shorts in the system should all combine to produce a swift rise towards the target. While this may look large in comparison to the recent lows, it would hardly be a 38% retracement of the fall from the March high. So that is really nothing much. In Monday’s letter I had mentioned that the max expectations could be to 8615 and we shall revisit the situation later. This still remains the case but now the probability of those levels have increased considerably. Of course the other level mentioned in the same letter at 8432 being a change in the price cycle would continue to offer some resistance initially on the way higher and could be targets for intra day or short term players.

NE29042

The next chart shown is Bank Nifty, where, the signals are even better than the ones seen on the Nifty. I am saying this mainly because the range of the day’s movement was larger than the previous day, charging beyond the high of Monday. As can be seen in the chart shown the BNF also has a nice pitchfork signal as well as Bollinger band pattern and the divergence in the oscillator. The rise off the low in intra day charts is also showing a better pattern and hence the BNF can be expected to continue to lead the advance today and perhaps even tomorrow.

The Mid cap index kicked right back yesterday, signaling that the buyers may be back here. Many of the stocks have been hit down quite a bit and hence the willingness to buy in may be quite high and if the main market remains steady, we can again see the mid cap zone turn quite active.

Summing up, the evidence has suddenly turned a lot better and seems to suggest the onset of a rally. The chances that it may slip still exist but could be pretty slim. Follow thru action today in the Nifty would be a signal to go long today and such a signal is already flashed in the Bank Nifty yesterday. IT still struggles but may get into action if the other two indices are in play. With retail buyers back, mid cap could be an area to prospect as well. The short term may just have turned better. Time to play?

 

STOCKS

Banks: Although Bank Nifty fared well, there is no clear winner yet in the stocks and hence it may be up to today’s trading to set the winners. I would focus on Federal Bank, Bank of India, Idbi, Icici, Axis for some tradable opportunity as these are looking well set to give off some moves.

Pharma: The clear pick here is Auro Pharma. Go for it if market is better. Divis and Glenmark could have completed their correction. Lupin has dropped down into support and should now stage a rally.

Metals:, Tisco still looks to be the best bet. Sail is good too. SSLT can turn better with some effort from this level.

Auto: Amtek Auto may show some signs of recovery. Ashok Leyland is a great buy here.  Bajaj is still trying to kickstart its engine as is Hero. Maruti is in fine fettle and is the best pick of the lot. Tata Motors could rally.

IT has seen a slew of poor results and this has taken toll on the results. Infy was the latest among the top tier companies to disappoint. Selling has emerged in all and continues in some. However, Tcs, Hcl Tech may have already completed the selling. Wipro has hit some supports but needs to show that buyers are biting at these levels. Mindtree, TechM, Infy have more room to the downside. Ofss doesn’t count. Hexa keeps moving a bit here and there and flows with the market trends. So, at best, a mixed performance coming from this sector for the week ahead.

Financial services stocks are middling to poor. None of them have any positive prints on the charts but most are into consolidation. Housing finance companies- except IBull Hsg- are under a bit of pressure and should be looked at for declines if market is weak. SKS has dropped and should probably continue to do so. Others are not really worth trading unless market is positive.

Real Estate was singled out for declines in the last week letters and all have dropped. No succour is available for now and further declines are in store. Avoid participating in them even on rallies.

Cement is weak overall and has been a disappointment. But could rally if condition are favourable.

Telecom stocks are in decent shape and could be in the forefront in case of a rally. They could be contributory for a rise. Look for dips into support as a chance to buy

Misc group has a varied picture. Century still is bullish and lower levels remain a buy. UPL continues to be positive and is still a buy on any intra week dip. Voltas looks ok at lower levels for a buy so await a rally to get into this one.

So what emerges from the above is that the stock situation is not too good. This means that even if there is a rally, sustained stock participation would be a question mark and we could see stock preferences rotate thru sectors. Thus for stock trading it would be wise to adopt a hit and run approach rather than buy and hold approach for this week. If that is difficult to do then choose to look beyond into May. Buy and hold is only for longer term players.

 

 

 

 

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