- Nifty dropped down to the minimum target zone indicated bear 8075 and has revived. It now needs to get past 8160 levels to confirm its rising intent.
- A break below 8060 now will imply continuation of the correction process that began last week.
- Cnx IT has moved to the next resistance at 11070 and a thrust past this level is required for the index to continues its upward path.
- Sentiment is biased towards correction and not too many are prepared for strong upward moves. Hence we must prepare ourselves for that possibility as well.
- Next time count for Sept seen on 5/8th, 19th and then 26th.
INDEX TRADE SUMMARY
- We continue to remain long on BNF with a stop revised now to 15850 levels.
- We shall look to buy NF if it trades for some time above 8160 levels.
- Cnx IT is a buy above 11100. Look for support from leading IT stocks.
STOCK TRADE SUMMARY
- Arvind Mills has moved into second target. Take full profits.
- Hold Tata Chem. Buy dips to near 405.
- Asian Paints and IRB look like two ideas to latch on to for this week. Buy.
In the last letter I had highlighted the requirements for the index to turn bull or bear (over the very short term) nad we find that the market has hinted at lower rather than higher. See chart below of the intra day set up as of Friday.
The index has formed, on an intra day format, lower tops and bottoms. The rally held beneath 8150 levels which I had pegged as a kind of inflexion point for the upside.
While small lower lows have been formed on an intra day basis the downmoves are simply not able to charm fresh sellers. Hence they may be thought of as the handiwork of traders rather than larger players. Clearly, therefore, no selling has emerged and it is only the light unwinding of leveraged positions that is at work. To that extend there is no damage to the trend. But yes, the fact is that over the last couple of sessions, sellers would have made some money on an intraday basis.
The lack of force can also be judged by the fact that the RSI choses to range rather than follow the trend in the prices. This reveals lack of trend strength.
The prices we can see, have dropped down to the level of the moving average bands. During this portion of the rise, these bands have supported the reaction attempts. Hence a beak of this will probably indicate a slight change in the temperament of the market. So that is something to watch for in the week ahead, if one is looking for more reactions. If, however, the index chooses to treat the band as support (once again) then we should be trading up. 8160 continues to remain the minimum level to achieve to ward off the bearish hug that is being attempted.
But not much to worry as we can see from the trendline situation on the weekly chart. See below.
The chart above shows different trendlines drawn off swing lows. The sharpest one is using pivots on daily charts and is the nearest. Some push downward and this can be broken rather easily. There are many support lines lower so there is no real danger of this market turning bearish anytime soon. No one expects that anyway. But it is pertinent to note that the next weekly support line is placed only at 7760 levels and that is a decent distance away if you are a short term trader! That will tie in with some retracement levels too and hence can be thought of as the minimum achievable level in case of further drops. And that would certainly satisfy all those looking for “reactions”. They can then promptly head for the microphones and announce that the market has had a ‘healthy reaction’ or a ‘much needed reaction’ etc and spot new buys! So actually, if you go to see it from a different angle, a pullback now would be something that most people would welcome!
How ironical that! But market works at different subliminal levels for different people! For some, a reaction would relieve the guilt of having sold off earlier. For others, it would relieve them of the burden of acting at a high price level. For yet others, it would be a welcome chance to cover those shorts that they made a while ago, trying to catch a top! For very few, it would be a chance to buy lower!! That is just for the TV guys to spout intelligently! (and, I include myself among those!) . But I want to point out here that many market men have problems with the trend going higher (as they fear participating in it, perceiving risk) and would more than welcome a reaction. Thus a reaction now would actually meet with some good participation from profit booking, trader shorting and possibly even some portfolio lightening! That will also give a chance for all those ‘crash-is-coming’ guys to say I told you so!
Also, as it winds higher, the participation begins to drop progressively as people get scared of heights even more. Also, whatever positions are created are mostly intraday or max a couple of days in trade length. Thus people are ready to drop them at a moment’s notice for fear of being caught out near the highs. Thus the conviction on the trades become more and more tenuous as it goes higher. This has been the bane of the market sentiment for long and it only gets worse as we go higher. This is NOT topping sentiment. It is instead a confirmation that we have far more left in the market ahead of us. Nervousness of a top seldom creates a top- only a temporary high.
Now that we have spoken about the downside, let us look at the upside. For, the market has done very little so far to even suggest that it does not wish to continue to the upside.
I have pegged 8160 as the point beyond which we should consider that the market is heading higher. In the weekly chart shown earlier, I have marked a projection target that comes to 8200. Question now would be, can this market shoot up? After all, the prices did fall only to the indicated target zone of 8075 and have moved up since. Not going down is in itself of a signal that it may want to go up. Most people are ready for a downmove. But how many are prepared to participate in an upmove. I would wager that the ratio is 10:1 only!!
There is only one problem though. Those looking for big burst upwards have to necessarily take swing or positional trades. You cannot be a day or 1-2 day trader at heart or by practice and expect to take part and sustain thru a big move. The chart attached above shows two stoploss indicators plotted on the prices (one short, one medium term) and the Ease of movement index (which is a price and volume combined indicator) plotted beneath. It can be noted that trends are in a comfortable situation as of now. Hence, in the absence of any bearish triggers and periodic minor selloffs removing the stock overhang from the market, there is every chance that we could head higher. But the stops on such positions would be 8015(short term line) and 7772 (medium term line). If those are ok for the way you trade, then by all means think about bigger upside in case the rise resumes this week.
Bank Nifty is not different compared to NF right now. Its target around 16470 continues to remain open. All positions to be held now with a stop around 15770
Cnx IT has a projection resistance at 11080. Staying beyond that with help from leading IT counters would be a positive for further gains during the week. Fumbling at this level however would equally imply the strong possibility of a pullback. This would be dependent on how the leaders behave. So watch the stocks first to decide how the index will behave.
Summing up, we need to watch whether the market chooses to move ahead after the brief yielding of ground to minimal pullbacks or chooses to extend that pullback. 8160/8060 can be used for the coming week as a band that needs to be crossed to signal trends setting in. Cues on Bank Nifty can be taken from the NF moves. Cnx IT could continue higher provided top stocks in the sector continue to fire.
Arvind has moved into the second target zone near 328. Can book balance profit. We shall look to buy on future dips.
Tata Chem move looks to have commenced. Now pullbacks to the breakout zone near 400 should be used to add. Stock should be on its way towards 430-440.
Asian Paints looks set to continue further. Next target it could head for should be 677. Can buy current and dips.
IRB has shown a breakout from a triangle pattern and may push ahead towards 285-290 levels in the days ahead. Create swing trade longs with a stop below 260.