4% gain over the week

After getting beaten last week, markets went up on all the days this week. Over reaction to budget announcement created a mess in the markets, only to recover back in the next 5 days. While, the damage is done for some more time.

When such big drops happen, it shatters confidence of traders. They will shy away from taking positions for some time. This will dry up volumes and bring a lot of losing trades in the market.

As the markets have been moving up, in the last 2 days we are not seeing big run up in price, it shows that, weakness is setting in.

Among the charts we had discussed yesterday, Reliance has played out well on the short side. Hindalco had a few whipsaws & is getting ready for a fall. So is Vedanta. We have positions in Reliance, will share the experience once the trade is completed.

For Monday on the intraday, all the 3 stocks Reliance, Hindalco & Vedanta holds good for short. There are no long trade possibilities. This is also another indication that the markets are likely to go down in the next week. How much? We cannot gauge it. It can be a small drop, for a support and turn up. Or can have a slide, then get ready for a bigger bounty.

It is always good to re-test bottom and then go up. It gives more space as well as more participation. Instead, if the run up comes without forming a base, it will remain a short stint.

Potential Daily trades:

Stocks to look for trades this week. We have 3 stocks from the total NSE 200 list that qualify for a potential trade this week. All of them are for short. When most of the expected trades are in one direction, that gives an indication of what the market is likely to do in the coming days.

As per the data we have, market is expected to be down in the coming week. And this is obvious with the straight upside we had in the last week.

Nifty and Bank Nifty are likely to trade sideways for some time. When the indices go sideways, it gives an indication that there are likely chances of whipsaws in trades. Whipsaws are losing trades in a system.

Stocks that are candidates for potential short trades are HAVELLS, Hindustan Petroleum & Balkrishna Industries. Balkrishna is getting weak after a good rally while Havells and Hind Petro are already weak & are reaching value zone for further shorting.

Let’s examine Balkrishna in detail

 

This is the weekly chart of Balrishna Ind, 2 green arrows at the bottom is where we had trend reversals in this stock. First one failed while second one developed into a strong trend. This happened in September 2019. The time when the whole markets bottomed out.

Trend entry came at 852 & today the stock is trading at 1150 levels. Those who are holding a trending position in this stock can continue to hold as the trend is getting strong.

Then how do we talk about a short in Balkrisind? At the right edge 2nd week of Feb, price made a new high, while the bar is still Blue, it did not change to Green. The colour coding of bars is to indicate if the EMA and the histogram are in sync. That is, when Price goes up, EMA will go up because it is the average of price movement. Along with that, if the MACD Histogram also goes up, bar will get coloured Green.

Bar gets blue colour when either one of the indicators, EMA or Histogram going up. IN this case, Histogram did not go up. It is an indication that the stock is losing strength. In trading we trade the dominant side of the stock’s strength. We call this colour coding of price bars as ‘Impulse’.

Price can go in 2 directions, up or down. It can go sideways, that is, stay where it is with very small movement both up and down. This happens when the stock is in non trending. Here Balkrishna is trending bullish.

How to know if the stock is trending? On the chart we have Green & Red bars at the top. That gives indication of whether the stock is trending, if yes, in what direction. At the right edge we have Green Bar, which indicates that, the  stock is trending bullish.

Now, Balkrisind is in bullish trend and it is losing strength on the upside. So, next direction is, down. As weekly gives direction for a short trade, we need to look at the daily chart to find if it supports and take the trade there. For Balkrisind, Daily chart is still to clear the trade because as of last Friday, it still holds green impulse.

Daily chart of Balkrishna Ind.

At the right edge of the chart, price is reaching for a higher high, histogram is below zero, no bullish strength shown on the indicator. At the same time, impulse of the price bar is Green. Till it turns blue, going short on the stock will not work.

When will the bar change to Blue?

As of the last bar on the chart, if the next price close is below 1101.23, bar will change to Blue and allow short. It can come in the next session. Let’s track.

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Ramesh Sigamani

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