Saturday, January 3, 2009

Nifty Review : Bulls are ready to take charge...


At the outset, I wish all the visitors to this blog a very happy and prosperous new year. Will 2009 be a good one for investors and traders? Let's find out in a moment.

Visitors come to this site from across the globe; 72% of them are from India, 12% from US, 10% from Middle East and remaining from countries like UK, Singapore, Australia etc. There were surprise visitors from Korea and Lebanon too.

Many people have asked me through email why this blog is not updated more frequently. Of late, I am little busy with other commitments. I feel like posting at least 2 articles a week (time permitting) and hopefully I will be able to do it soon.

As I have mentioned in FAQ this site essentially discusses the Indian stock market scenario from a technical perspective. The information contained herein should not be considered as investment or trading advice.

Recently I reviewed a manuscript from McGraw-Hill Education (India) and this is what they wrote to me:

"Dear Mr. Sundaramurthy,

Thanks a lot for your wonderfully prompt reply!

Your views on the relative importance and relevance of technical and fundamental analyses are particularly enlightening. Although you had explained the same in the review form, I needed a clearer opinion on the applicability of the synthesis approach which I received in the mail. We would duly communicate your suggestions and comments to the author, and accordingly take the publishing decision. Your expertise has been of great help to us. Should you consider writing on your domain, do consider our organization. We hope to draw on your knowledge in such assignments in future."

Many thanks to McGraw-Hill Education (India).

During October 2008 Nifty had lost 26.41% while in November 2008 it lost only 4.52% and in December 2008 it gained 7.41%. Usually the stock market participants (investors and traders) think that December is not a great month because FII's will go for a year end holiday. But Nifty has developed an interesting bullish "Pennant" formation. We discussed about such a formation (bearish though) in Will the bulls be able to win the battle? as well.



Flag and pennant formations are short term continuation patterns which precede the resumption of previous trend. In the above chart, "pole" formation i.e. a sharp upmove started from October 27, 2008 (watch the hammer at the bottom of the downtrend) and this move contained 3 long white candles. A symmetrical triangle was formed between November 11, 2008 and January 2, 2009. A break above the resistance line will mark the beginning of continuation of the uptrend. Technical indicators like MACD, Wilder's DMI and parabolic SAR favour an upmove only (though both 50 DMA and 100 DMA are well below the 200 DMA).

So, watch out for the bulls! they are ready to take charge once again.

Given below are technically bullish for the short term.

Bindal Agro (15.25):


This stock moved from a low of 8.65 on October 29, 2008 to a high of 13.15 on November 10, 2008. The downtrend that followed made a new low of 8.20 on December 2, 2008 but it showed positive divergence (i.e. a lower low was formed but MACD showed a higher low). The stock touched a high of 17 on December 17, 2008. A bullish "Three Outside Up" candlestick pattern was formed on December 30, 2008 indicating support at the previous high at 13.15. Though the volume on the third day of the pattern was below average, it is still a powerful pattern. The stock is likely to face resistance at 21.60 (which was the support it broke during the previous downtrend).

Crompton Greaves (149.35):


The stock too made a positive divergence during November 2008. The demand during the first wave was steady as indicated by rising prices and volumes. The decline had only one black day with more than twice volume at the peak of wave 1. However this can occur at times. On January 2, 2009 the stock has broken the resistance trendline with good volumes. Technical target works out to 201.90; the stock may face resistance at the previous high at 186.90.

Gujarat Alkali (80.30):



The stock made a low of 55.35 on October 27, 2008 and a small upmove was witnessed till November 5, 2008 when it touched a high of 76.90. On November 21, 2008 it broke the previous low by registering another low of 55.10. However a positive divergence was seen. Nearly after 2 months of consolidation, the stock has broken out on January 2, 2009 with good volumes. Technical target works out to 98.70.

IFCI (23.15):


During the decline from a high of 22.65 made on November 5, 2008 IFCI did not break the previous low of 15.35 registered on October 27, 2008. After 40 days of consolidation the stock did break the previous high; however it declined further back to 19.55. The upmove has started once again. The falling window (downward gap) at 26.20 is likely to be a strong resistance; once this is broken the next major resistance is at 44.30.

Sterlite Technologies (70.10):

Like IFCI this stock was in consolidation pattern from November 5, 2008 till December 15, 2008. On December 16, 2008 it broke the previous resistance at 69.80 with very good volumes. It was once again consolidating and sharp rise in volume was seen on January 2, 2009. Technical target for the stock works out to 90 and 121.