Dow Theory

The Dow transports have broken their last lows while Industrials are way above.
The Transports Index has broken the lows of 3660 on closing basis while Industrials are still above the last lows of 9450.

Now need o watch if Industrials makes a new low or Transports make a new high. In both the cases the Dow Theory validates.

Nifty Pivot Trading

I use pivots for swing trading. One of the good startegy is like break of lower support or higher resistance gives the direction for next few trading days.

A real good example is last wek's break down from the second support pivot on 22 Oct. It is from this day that one can have a bearish bias going forward. The confirmation is to watch if Index can cross the first resistance line. If it gets sells off from the first resistance then we can sell the index.

In this case the pivots form a lower step patterns which shows lower prices bias.

The nifty break of lowest pivot on 22 Oct and then on 23 Oct it got sold off from the first resistance.

Attached is the chart of Nifty with pivots.

Next comes when to close the position. Well there are many signals one can use for closing the position. One easy way can be to look when Index takes support at mid pivot with getting sell of.
Will write in detail about this strategy later.

World Indices at Trendline Support

Shcomp Index is forming a wedge kind of pattern and right now at critical trendline support at 2990.

The Korean Index is at support from the Oct lows and has trendline resistance also from the highs. Noticeable is the top formation in KM1 was with hanging man and then long legged doji’s signifying that pressure is there at top.

SPX index is also taking support at the trendline although I feel a bit more downside is there as the %age down movement this time is less than the average of last ¾ declines. Also worth analyzing the SPX candles at the 200 DMA (yellow line.) There are evening star, doji kind of patterns. Also the rebound has a gap up right at 50 DMA.

Bar reversal pattern

Bar reversal is a classic pattern in western chart analysis. Although I mainly use the japanse candlesticks but sometimes the bar patterns are more useful. The recent price action shows the difference between these two display techniques.

The SPX index which has two bar reversal candles on Sep 23 and 21 Oct. On both days the index opened at the higher and then made a new top but closed below the previous lows. Thats what a classic bar reversal is.

Same pattern can be seen in Nifty on Oct 1 and Oct 10 whcih are bar reversals.

Now we will analyse the same dates with candlesticks.

First SPX on 23 Sep made a bearish engulfing pattern. This kind of pattern is a bearish pattern and its intensity increases if it occurs at top. The second candles stick on 21 Oct can be said kind of shooting star which again is a bearish pattern signifying the top formation.

Second in Nifty the respective candles are evening star and shooting star.

The conclusion we can draw form all this is that

1. The bar reversal pattern has occured right at top and predicted the reversal while the candles do have bearish implications but the power of prediction was not that strong (leaving the evening star formation in Nifty on 23 Sep.)

2. In candles the shadows (i.e. the wicks) play less important role than they in bars.  In candles the real body is more important.

3. Both the bar reversal patterns have occured at the end of wave.

The occurence of two bar reversals within span of 1month is a major -ive events for the markets. Although I did not pointed the same as early as possible, I will try to point out such patterns as soon as possible going forward.

Sensex Advance Decline Divergence

The following chart shows the divergence between the Sensex and Advance/Decline ratio.

There are few things to notice:

1. Sensex has been moving upside from June onwards but the AD ratio is on continuous decline. The hike in AD ratio is caused by the Indian election results. This is the divergence which shows building up weakness in indices.

2. The sharp fall in the ratio in last 2 weeks. This kind of sharp fall generally comes in the last phase of the move.

3. As per Elliot this kind of divergences are generally seen in the 5th wave which is the elliot count of Indian indices.

4. The AD ratio is right at support area. Any further weakness can mean more downside weakness in Indices.

Also, seen on the daily charts, there is also divergence and the AD ratio is in -ive tertiary.

Time of caution.

Nifty Weekly Update

Time to talk about long term outlook for Nifty.

I am using a very simple principle of prices that is "Mean Reversion". The prices tend to revert to their mean after diverging from it.

This can be perfectly done for any indices by using the ratio of Price vs the Moving Avergae's. I am using the same for Nifty with two MA one longer term and another ome intermediate term.

The chart shows that the Nifty on longer term MA ratio is at the top of the range and is showing the toppish kind of pattern. While the short term MA is having diveregnce with respect to Nifty.

To further improve the indicator I used the stochastics principle on these ratios. The improvement will give the buy and sell signals like the stochastics.

The Longer term MA stochastics is still to come in sell while intermediate term MA stochastics is showing the sell signal.

Now the big question: How to trade it?

Well the only way to play is through the LEAPS i.e. the long term options on Nifty as position building through the Futures can be too risky.

Thenext part is when to trade it. Well I will answer that question some time later.

Nifty Pivot Trading

Pivots are used by many traders as intraday points of buying and selling.
Today Nifty got sold off right from the first pivot resistance and the support was mid pivot. Since the pivots were quite wide today (difference of 40 points between the bands) the touch of first support pivot should not be expected. One more reason was that the Nifty is giving down day from last 3 days, so some bounce back can be expected.

Now when any index falls from pivot resistance levels then it portends weakness in future and vice versa.


The other major thing was ORB trade i.e. Opening range breakout trade which is profitable form last two days.

Nifty Trendlines

Trendlines matter a lot in Technical Analysis. They are both source of power and weakness.

Power in the sense that they will bring buying at those support prices. Weakness is the respect that they will induce selling at the resistance.

Nifty has broken one long term trendline while supporting a short term trendline. The break of long term trendline which was in action from March lows. This trendline is very significant as it forms the lower channel of the elliot count. This break of lower channel in up trend is deemed as dangerous. Earlier brreaks used to bounce back in a day but this time it seems that Nifty will close below the trendline which stands right now at 5100 levels.

The second trendline where Nifty got support was the lows of last two days. It perfectly bounced from that line.

Indian F&O Stocks view

Stock Sector Mode Support Resistance Target Comments
Aban Oil Services Neutral 1525 1675 Looks more for sell.
ABB Cap Goods Neutral 775 825 Turning down from resistance. Watch only above 825.
ACC Cement Sell mode 750 802 If support of 750 broken major downside.
AB Nuvo Fin Services Neutral 920 1025 At Support levels. Need to see if bounce is there.
Adlabs Diversified Neutral 335 375 Focus elsewhere till 375.
Alb Bank Bank Buy mode. 115 122 Today took support. Watch out.
Alstom Cap Goods New Buy 548 580 Breakout failed.
Ambuja Cement Sell mode 90 101 Sell on bounces. New lows
Andhra Bank Bank Buy mode. 101 -- Retracing. Candles showing top in place.
Ashok Leyland Auto MoB 41 45 At MoB. Watch for resistance.
Aurp Pharma Pharma Watchlist 760 Retracing. Watch for support.
Axis bank Bank Watchlist 955 -- At support levels.
Bajaj Auto Auto Neutral 1430 1600 Looks like entering sell mode.
Bajaj Hind Sugar Buy/Watchlist 200 -- Retraced and took support.
Balram Chini Sugar Buy/Watchlist 129 -- Retraced taking support.
BoB Bank Buy/Watchlist 485 525 Retraced at support levels.
BoI Bank Buy/Watchlist -- Candles not supportive. Looks like it will consolidate
Bhart Forge Auto Watchlist 270 -- Retracing.
Bharti Telecom Sell mode Taking support at 320 levels.
BHEL Cap Goods Buy/Watchlist 2365 -- Look at 2400 levels.
Bhushan Steel Metals Buy/Watchlist 1270 1450 Retracing look for bounce.
Biocon Pharma Buy/Watchlist 270 Strength and support is there.
BPCL Oil Sell 510 540 Looks like entering sell mode.
Cairn Oil Buy/Watchlist 275 290 Retracing. Look for support. Strength still left.
Can Bank Bank Watchlist Retracing
Century Text Diversified Watchlist 485 Retracing. At support levels.
CESC Power Neutral 375 400 Caution: Previous breakouts have failed.
Chambal Fert Fertiliser neutral 51 59 Breakouts failing.
Chennai Petro Oil Neutral 230 Entering sell mode.
Cipla Pharma Neutral Retarcing. Look for support.
CNXBank Bank 9500
CNX IT IT MoB MoB levels. Watchout.
Crompton Greaves Cap Goods Neutral 330 -- Retracing.
Dabur FMCG Watchlist 146 Retracing.
Divis Lab Pharma Watchlist 585 -- Right at support.
DLF Real Estate Watchlist 430 Candles bearish.
Dr Reddy Pharma Neutral 1020 Entering sell moce.
Educomp Diversified Neutral 4600 4850 At support levels.
Essar Oil Oil Watchlist Retracing at support levels.
Gail Oil Neutral 360 390 Retracement happening. Looks weak.
GE Shipping Shipping Watchlist 310 Breakouts failing. MoB levels.
GMR Infra
Grasim Cement Sell mode New lows.
GVK Power Infra Buy/Watchlist 48 Retracing. Watch for support.
HCL IT MoB Watch out.
HDFC Bank Bank Watchlist At Support levels. Watchout.
HDFC Bank Buy/Watchlist 2700 2900 Retracing. Look for support.
HDIL Real Estate Buy/Watchlist 355 Retracing. Watch for support.
Hero Honda Auto Neutral 1600 Suppot broken.
HUL FMCG Buy/Watchlist Bounced from support.
Hind Zinc Metals Buy mode. 860 Buy mode.
Hindalco Metals Buy/Watchlist 130 Candles weak.
HCC Infra Neutral 135 Right at support levels.
Hotel Leela Hotels Neutral 39 Retraced to support.
ICICI Bank Bank Neutral 890 950 1000 Retracing. Look for support.
IDBI Bank Neutral 128 At support levels.
Idea Telecom Sell mode Sell on bounces. New lows
IDFC Fin Services Neutral Retracing.
IFCI Fin Services Neutral Breaking support levels.
India Cements Cement Sell mode
IIFL Fin Services Neutral Right at support levels.
IBREL Real Estate Neutral Retracing. At support levels.
Indian bank Bank Neutral 170 Retracing.
Indian Hotels Hotels New highs can be expected.
Infosys IT Neutral 2300 At support levels. Bounce can come.
ISPAT Metals Neutral 22.5 25
ITC FMCG Watchlist 245 Bounce from support.
IVRCL Infra Neutral At support. Can bounce.
JPA Infra Watchlist 240 260 260 At support. Can bounce.
Jindal SAW Metals Watchlist 770 Candles weak. Retracing.
Jindal Steel Metals Buy Wow.
JSW Steel Metals Watchlist At support.
KMB Bank Bank Neutral 765 830 Watchout. Caution.
Lanco Infra Neutral Breakout failed.
LT Cap Goods Neutral 1750 Support broken. Can come down more.
LICHF Fin Services Buy 840 Bounced from support. Can move up.
MM Auto Buy 925 Bounced form support.
Maruti Auto Neutral Supports broken. Coming is sell mode.
MLL Shipping Watchlist 60 Sideways.

Relative Strength of US ETF's

I did the analysis of the relative strength of the sectors of US from the sectoral ETF.
The ETF’s are Basic Materials, Energy, Financials, Industrials, Technology and Consumer staples.
They were analyzed with SPY as market benchmark.


The graph shows really good observations. Some of them are:

1. XLF (Financials) drove the entire rally in SP500. They have been the strongest sector among all. This was also the same sector which was beaten down in the fall.
2. The Basic Materials ETF is also one of the strongest sector and is has never been in the –ive zone. This can also be seen in the basic materials rally from March lows.
3. The Energy sector which was laggard has suddenly moved up as oil has broken the trading zone and moved to new highs.
4. Both the XLE and XLB move +ively on the dollar deprecation trade.
5. The concern here is the drop in strength of Technology sector which has the highest weight age in SP500. The continuous underperformance by XLK can drag the SP500 down. NDX even after good results of IT companies is lagging the SP500 and Dow.
6. We also need to see the performance of Consumer staples. This sector being defensive will outperform when there is decline in index.

Nifty Elliot wave count update

Here is the updated Nifty elliot wave updated version.
In this post I am using the Nifty spot while earlier I was using the Nifty futures. The Correct way is to use the Nifty Sopot so I will keep following elliot on Nifty Spot.

Well, the count as per me is in wave (iii) of 5th. When breaking this (iii) wave we are in 5th wave. This 5th wave as per me will get over if Nifty does not cross above the 5182 top.
Here are the workings of wave

Wave (iii) of 5 breakdown

Wave Start End Move Comments
1 4375 4744 369
2 4744 4580 164
3 4580 5110 530 Extentsion of wave
4 5110 4935 175 ~= Wave 2
5 4935 5182 247 ~=0.5* wave 3




The break up of the larger wave 5 is as follows

Wave 5 breakdown

Wave Start End Move Comments
(i) 3919 4732 813
(ii) 4732 4375 357
(iii) 4375 5182 807 ~= wave (i)
(iv)
(v)




So there is a possibility of Nifty move getting over at 5182. On the upside if 5182 is crossed then we can look for 5305 where the subwave will equal wave 1.

Lets see what happens next.



Attaching the updated elliot count chart.