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Praveen Pathiyil

Wednesday, 7 October 2015

Tuesday, 6 October 2015

Will this rally fill the gaps?

Bottom Line: We are in last leg of the first correction of our multi month Bull Run. We will not enter Bear trajectory until Nifty breaches and close below 6580 for three consecutive days.

Good Morning!

Mr. Market loves to play fool around with Bulls Bears and all analysts. This is what we stated last week and here he goes. Now Nifty is marching towards filing up the hard gap that we have witnessed in the month of August. What next?

Even before we discuss what next, I wanted to discuss something i think is more important to read before analyzing markets. The topic for discussion is "Looking at the chart at different angles (time frame) ". Someone asked me this over the weekend, what would be done if different time frames gives different outlook. A very good question, I said now you have started to learn analyzing markets. Why? Unless a person looks at the chart in different time frames he is not going to understand what is happening or rather understand what is going to happen in the coming sessions. Contradictions on the outlook looking at different time frames would be there and it has to be there. It is the duty of analysts to synthesis the chart in totality after considering all possible angles.

A minimum of 3 different angles needs to be looked into always, then needs to synthesis even before jumping into any conclusion. Let's say I look into monthly, weekly and daily chart. Consider it is like film. The Monthly chart gives me the main picture. The weekly chart is something like reading a plot or looking to the film review or ratings. And the daily chart is like a trailer. Obviously, can you conclude saying a film is good or bad purely based on looking at a trailer? No, similarly the case goes with film reviews or reading the plot. The plot might be more or less with most of the other films, however if we need to conclude saying a film is good or bad, we need to see the film completely. That is why a monthly chart acts as an important chart than in any other to understand in totality. Similarly the daily charts as this chart summarizes the entire day's event. It acts as an engine as to whether you want to look into a film or not.

So that was a little story. Now back to business. Nifty daily chart has turned neutral from negative. Intermediary (Weekly) chart still remains neutral while Monthly (Main Picture) chart still remains bearish. Nifty can march ahead in filling up the gaps even before turning down. With no signs of turning up in monthly chart, it would be hard to believe the correction that we are witnessing would be far from over.

Stay tuned am updating the charts. 

The key levels to watch out for on the upside are: 8225 (21st August Low) and 8359 (20th August Low) as these marks the start of hard gaps.    

Thursday, 1 October 2015

An in-depth analysis on Nifty

Bottom Line: We are in last leg of the first correction of our multi month Bull Run. We will not enter Bear trajectory until Nifty breaches and close below 6580 for three consecutive days.

Good Morning!

Just now the DOW closed, closed with big gains however closed this quarter on a losing streak. As some of you know, I analyse and trade DOW more than any other market.

Let’s get into business. Am going to keep this post a bit longer. As we move towards a longer weekend, let us do the analysis bit deeper. Am going to take you through how a real analyst go through a chart with minute observations to arrive at some conclusion. It would be boring for some who doesn’t want to learn how to make money. It’s going to interesting for those who want to understand how a technical analyst observes a chart.  

Firstly, let us pull up the longer term picture of Nifty – the monthly chart.

Nifty – Monthly

We can easily identify the long term upward sloping trend-line still in place. This indicates Nifty has more room on the downside and currently we are heading towards 7400 mark if we have to believe this long term trend-line is to hold. If we drag in terms of time correction, we might see this 7400 mark moving towards 7450 or 7500, let us not speculate right now on where this correction could end up.

Nifty - Weekly

Now let us move to intermediate view on Nifty. Let’s pull the weekly chart. The zig zag zone that we believed till yesterday was a rectangle, you can find it in the posts below. Now observing this chart closely, we find it to be a perfect flag pattern in formation. RSI still has more room before turning down from in between 50 and 55 mark. Let us zoom this picture closely as to understand when will this zig zag zone comes to an end.

Nifty - Daily

Looking at the daily chart for a closer observation. Now this gives us few cues.
  1. we are heading towards an end of this zig zag zone. Once we hit around 8040, most likely today we might end up this zig zag moves. Even though we still have a probability where in Nifty move towards 7750 and hit back 8000 once again to stay in zig zag zone for quiet sometime, however the reason why I say we are ending up is by looking at the VIX chart which is posted at the end of this post.
  2. RSI has some more room on the upside wherein it can turn down in between 50-55 mark. We always consider 50-55 mark zone in RSI chart as a completion of the pullback rallies. This zone gives the main trend more inherent strength to push prices lower.

Now the question comes, if we are heading towards the close of zig zag zone; what next. Is it on the upside or downside. Can you see something different on the RSI chart? This holds the answer to our question. Let us dig the chart further down trying to answer our question.

Nifty - Hourly

Pulling up the hourly chart. We can now clearly see the zig zag zone (flag) on zoomed version. Now as we discussed earlier RSI on the daily chart hold the answer and this is why we have zoomed in. I have marked 4 points on the price chart. Three different lines have also been marked on the RSI indicator. Let us understand if there was any positive instances in the chart to indicate the next move up.
  1.       When RSI moved from 12 to 29 on the RSI chart, prices did actually moved lower indicating that this move do qualify for a positive divergence, however did not sustain the next few moves.
  2.       When RSI moved from 29 went all the way to 73 and moved back to 29, prices actually moved up; however it does not qualify for a positive divergence as RSI chart did not have divergence except for a double bottom.
  3.       When RSI moved from 29 to 31, prices again moved lower indicating another possible positive divergence which could pull back the nifty out of the zig zag zone, but fails to sustain the momentum (reading it along with MACD).

This shows though prices were hurrily moving up, it did not move on the basis of inherent strength of Bulls rather it moved up because Bears stayed away just to gain more strength to push prices lower once zig zag zone ends.

India - VIX

Finally let us pull India VIX (Volatility Index) chart. This will give us cues as in are we going to see an end to this zig zag zone in next two trading session or not. I have always observed, there is a negative correlation (most of the time) between price chart and VIX chart. So let us try to understand.

Looking at the chart we see an upward sloping line which acts as a trigger to plug in volatility in the markets. To be exact right now it hovers around VIX-18 and once this 18 mark is touched we might see another round of volatility creeping into the market, moving towards 40 mark which means (negative correlation) nifty moving towards 7400 mark.

Conclusion: Today watch out for Nifty @ 8040 + India VIX @ 18. If this combination happens either today or Monday, we might see the next round of selling coming in. Alternative view: If we close above 8050 or India VIX closes below 18, we might see the gap @ 8360 filled up before we head down. Why am I saying this alternate view is simple? We are in a correction zone and always Mr. Market loves to play fool around bulls and the bears.

Caveat: It’s only Mr. Market who is always right, not the Bulls, nor the Bears or the analysts. Mr. Market rewards only those who understands this and who follows him rather than trying to beat him.

Safe Investing! 

Wednesday, 30 September 2015

A qucik note

Technically speaking, governor's surprise announcement on the rate cut, hasn't changed the charts much. Nifty likely to continue zig zag moves in the session ahead. The rate cut would give us a positive impact on the longer run.
Safe Investing!

Monday, 28 September 2015

Are we still in the correction phase?

Bottom Line: We are in last leg of the first correction of our multi month Bull Run. We will not enter Bear trajectory until Nifty breaches and close below 6580 for three consecutive days.

Good Morning!

Let us look at the Nifty chart first on a larger time frame before we proceed on in understanding what is going to happen in the next 2-3 days. Let us look at the main picture first.

Looking at the main picture, it is very clear that we are still in the final leg of this correction. This could take more time before we break out of this correction. The reason why it is taking more time in getting us out of the correction zone is very simple; this correction is actually an accumulation phase.

Looking very closely at the stocks of the broader market, one can understand one thing that people are accumulating good stocks on a daily basis taking leverage of the ongoing correction that we are witnessing. Though the broader markets may be moving down with each passing day, we find good stocks which could move up once the markets turn up are finding more accumulation rather than distribution, which we usually see in any correction phase. In short we find smart money moving from the not so fundamentally strong stocks to that of fundamentally strong stocks.

Looking at a minor time frame of Nifty chart, one thing is for sure that this zig zag move would continue further and this will take even more time than what we were even thinking of. Technically speaking on the technical parameters of this daily chart one could observer, as we have indicated earlier this month, the RSI really did turn down after hitting the 50 mark and on the MACD indicator it is giving a kind of convergence and it could turn down very soon starting a new sell off.

The immediate targets that I am looking out for on the Nifty, on the downside is 7540 and 7460. These are the two levels that we are keenly watching out on the downside. At the same time we are looking out for 8100 on the upside. This zig zag zone could probably drag Nifty further down in the next two sessions. Especially having Governor’s action round the corner, I strongly feel that nifty has more potential to move downwards.

Considering all these, I suggest rather than betting on the zig zag moves, to start accumulating stocks which are really really strong and wait patiently for the correction to wind up. Once we start moving on the upside, we could gain wealth many times over investment. Once the correction ends, the target that I am looking for on nifty (on the upside) is around 14,000. This means that real good stocks could fetch you 5-6 times of what you have invested over the next couple of years. So be patient, start accumulating very good stocks rather than falling prey to this zig zag move of Nifty. Stay invested, be patient and enjoy the fruits of the markets.

The trends for the day.

Long term Trend: Correction to the ongoing Bull Run. As long as we hold on to 6580 we will not turn negative on the long term view of Bull that we hold.

Intermediate term Trend: Trending on the downside with immediate supports at 7540 and 7460.

Short term Trend: Trending Down. The trend will not change until we close above 8100, which means 8100 would act as SL for those who are short in Nifty.

Thank you!