NIfty : Trin in Support Zone

For last 20 trading days which means almost a month Nifty is in a tight range of 4950 to 5150 if we consider the closing prices. This kind of range bound trading as experts say cannot carry on for long. Either the bulls or the bears will finally give up and the market which has been suffocated will break free, the move can and should be a fierce one, in whichever direction the market decides to go. I am sure readers must also have noticed that US market is also in a tight range. Have not been tracking other markets but I guess it should be more or less the same for all of them.

This uneventful though interesting phase of trade is definitely good for option writers, where a "Strangle" pays them handsomely. But it can kill you if you do not have appropriate stop loss, as you know one leg of the Strangle can give you enough loss to take away months of profit.

Lets focus on the TRIN chart which has started giving some "confusing" signals. Firstly what we see from the blue arrow is that though the TRIN was rising, Nifty kind of moved upwards. Later from the start of red arrow Nifty has virtually not moved at all but the TRIN has fallen quite dramatically! Both these observations are against the classical belief of "rising TRIN is bearish and falling TRIN is bullish".

Next point to be noted should be that TRIN is back into the support zone of 0.55 to 0.7, so we can be forced to think that TRIN should bounce from here making Nifty ideally go down or atleast go sideways, but definitely not go higher, unless something which happened around the blue arrow happens again!

I am not going to stick my neck out this time to predict where we are headed, from this point, but people interested in betting on markets (with getting a kick out of life, or living on the edge etc kind of attitude) can surely buy 5100 Calls and Puts simultaneously. If this breakout or breakdown has to happen in December (there is a large probability) then I am sure gains would be worth flaunting! The target of this should be 5350 on a breakout and 4750 on a breakdown.

Coming back to subject, as TRIN values for any particular given day can be very absurd, we use 10 day SMA to cut the noise and show some kind of trend. So for each day we drop the last day TRIN value and add the latest one to get the 10day TRIN SMA. Interestingly we have dropped a low TRIN and added a high TRIN but still managed to get a lower 10day TRIN SMA!! Are we missing something that eyes dont meet or are we being fooled by randomness!

Stock Idea : HUL

Nifty : Bearish Drums Again!

I don't know why but i keep getting reasons to be bearish again and again. Maybe I get more pleasure in finding reversal patterns than in continuation ones. I would rather enter a trade early than join the herd much later. So in this bullish environment I like being pessimistic.

Last night was enthralling for a bear. US jobs data was pending and Dow futures was cautious but optimistic and was trading at +25. Soon an unexpected positive surprise came and there were talks about how economy earlier and now jobs have bottomed out. Dow had shot up to +115 with the breaking news. After market opening of +100, Dow kept rising and threatened to blow out of 10500 resistance trading at almost +150. But soon came something more unexpected, the "frail" Dollar too started moving up, on fears of limited days of near zero interest rates. This started putting pressure on Equities as well as Gold! Incredibly Dow almost fell to -50 in an hours time. Gold ended the day almost at -5%, the highest fall in recent memories. If you see the volume of US markets its far more than current averages. Crude Oil as well was having a bad time but not as much as Gold.

So what can we make of what all happened in a single day. Good news is no longer good for stock markets, which means there is very limited upside left, if any. If such a good news cannot lift the market, imagine what an unexpected bad news can do. But as we know stock markets are much smarter (most of the times) and we can say some amount of interest rate hike in coming quarters has already been priced in and maybe will do some more in coming days. The dollar though was looking on the verge of collapse never really went below its previous lows. There are lot of big players supporting dollar at lower level, though they never admit it on CNBC! If all the recent fall in dollar had been due to shorting (dollar carry trade etc) we can see a huge short covering rally.

If that happens we can see all risk appetite and liquidity going out from commodities and equities. Yesterday we got a glimpse of that in Gold's price action. A 5% drop certainly meant that there was huge speculation and hype around, and all weak hands had to cover their position. I am very glad for the people who sold Gold contracts over 1200 dollars, when talks of 1500 was doing the round, and they were and will be aptly rewarded. And this is why I love being on the other side, when they profit they do it with style! Talk about the guys who made money in the housing meltdown!

Anyway, lets see how things can impact us if last night was really a turning point. Lets take a look at Dollar first, we see a big white candle going far above the 21day EMA and almost breaking out of the channel. If on monday we dont see a fall in dollar and in coming days a drift back into the channel we can safely say that there is more upside to come. The lower black line if considered gives a falling wedge impression, minimum target on its breakout is 77.5! I have not labelled but dollar seems to be completing a 5 Wave down structure and is ripe for a pull back. How much its going to be remains to be seen but a target of 80 for medium term can be expected. We also see positive divergence both in MACD and RSI, surely some sort of non confimration in the trend. Which means the fall has not much of strength to carry on and we can see some sort of reversal.

Now lets focus on Nifty's price action. Since my last post after Dubai scare, Nifty kept going higher and in last few days was struggling to close in positive territory, despite positive cues from global and currency markets. And in doing so what it achived is even more encouraging for bears! I have labelled the wave count as per EWT, and what it suggests is a flat ABC correction. Which means that the next price action should be a Wave C down with a minimum target of 4540 the previous low. It would be appropriate to add that the above pattern also translates as a "Double Top" but will come into picture only when 4540 support is broken, the final target in that case would be another 600 points lower and around 3900. But lets take things one at a time and first focus what if this possibility goes wrong.

So I will keep a track as to how world markets are doing, are they encouraging for India, will the good job numbers come into play again and propel rally in US markets? Is there more liquidity waiting on the sidelines? How is the dollar getting treated above the trend line? Is it a bull trap and dollar has to test it previous lows of 72? Is Nifty getting ample support at 5000 to surge ahead for new highs? We have supports at 5000-5030 and then 4800, is the Nifty showing lot of respect to them?

Above listed factors are surely things to watch out for if you are a bear or hold positions in risky markets (equities , commodities). Beacuse in life and in markets you never know what lies ahead.

Nifty : Crystal Gazing

I am being a bit wild here in today's post just as the Stock Markets around the world. Typically the day after expiry which always is a Friday tends to be a slow trade day, where big players just chill and enjoy the spoils of the previous series, watching poor retail investors and traders struggle among themselves trying to move Nifty by 10-20 points! But I am sure the overnight news from the Middle East mostly known for its exotic hotels and duty free shopping would have spooked them, ensuring the beer had to wait a little longer.

Nifty opened 100 points down straightaway and slided almost another 100 points, with 300 points shove off in a matter of hours it was obviously damn oversold. Traders not realizing it would have been caught in their "shorts". So what we get is another 150 points though in the other direction. Almost a week's swing in a single day! What I personally have learnt from today's price action is that we cannot take anything for granted, I could have easily sold 4900 Nifty Calls when it was at 4800 expecting to make a decent gain in coming days and end the day almost at 200% loss, a trade going horribly wrong!

Anyway coming to Charts and Technical Analysis, today's candle has a long tail below showing buying (short covering) taking place till the last moment we can expect this bounce to continue maybe till around 5000, but should be facing significant resistance at 4930-4950 levels which acted as good support earlier. I consider 21day EMA as a very good indicator so would be betting on not crossing it on closing basis.

Coming to the chart that I have shown, though its very early days for it but the pattern is getting formed almost perfectly. The Head and Shoulder pattern is one of the strongest and most reliable indicator of a trend reversal. Instead of going into the details of it, I would like to point that it confirms the end of a 5 wave structure and suggests a meaningful correction. As per the chart we can see Left Shoulder, Head and Right Shoulder, now if Nifty breaks the neckline and that too with good volumes it surely means the end of the "bull run". I feel in coming days the level of 4700 on nifty should be watched very carefully, this is where the neckline support would be in around a week and a half time.

I have rechecked my H&S notes to see if all the indicators fall in place, and to my surprise they do! Be it left shoulder within the up trendline, volumes increasing in left shoulder and then decreasing in right shoulder. But surely we can get mistaken so a confirmation of neckline break is of utmost importance for this hypothesis to be valid.

So what if this is a H&S pattern. The break of neckline around 4700 region with volumes would give us a minimum downside target of 4700-700=4000! Though we can expect a bounce from oversold levels after breaking the neckline which should be resisted at the neckline. I am talking about very distant future but that's only my concern for this post. So if things fall in place, I am sure december and early january is going to be a period to watch out. Historically not much happens in this holiday period across the globe, and for the above reversal to happen I feel we would need good participation. Lets see how this unfolds, but chances are that the fund managers are not going to have a relaxed vacation.We have 20 days to trade in december and the way situation take dramatic turns overnight, its not a distant future what I am talking about. Lets see if Dubai Debt issue proves to be a trigger for sell off or a start of a new crisis or who knows another false alarm giving opportunity to buy.