Nifty Reversal Vs. Head & Shoulders...
Nifty 50 - The prime index of Indian Stock Market has - atlast - shown considerable reversal today. The index, need not to be explained, have recorded huge lead of 184.05 from open and 235.25 points from previous day's close. Absolutely remarkable. The upmove indication was already received by the formation of red hammer at the bottom on daily charts of Nifty 50. But the way it has reverted is excellent.
Now, the question is, will this rally sustain? if it sustains, then what can be the next high point? Will it continue to its all time high? Will it cross the current all time high of 9119.2 of March 2015 or not? What a trader should do tomorrow in the market?
Lot of question. The answer is though not the most complicated, it is not so simple either. Nifty is in down trend since last 12 month. The bearish move was started on 4th March, 2015. Exactly 12 month before. The low hit in this downtrend was at 6825.8 and that was also just yesterday.
Today Nifty advances 235.25 points in upward direction from yesterday's close value. In this venture, Nifty has broken short term hurdels of 7100 and 7200 in a single day and that is remarkable. Volume generated is also can't be ignored. The close at 7222.3 is again a phsycological releif for the traders and pandits.
Now, let me come back to the point of discussion. Whether the rally shown by the index will sustain?
Before giving the answer. Nifty 50 is the index which is infulencing the scrips of Future and Options, or say the stocks movement reflects directly or indirectly the movement of Nifty in their daily movements. This is the reason, why majority of Future and Options group stocks were either in consolidation or downtrend.
Let us put in this way, If Nifty goes in upward direction, it will pull majority of stocks, either of Nifty 50 group, F&O Group, Midcap group or of any sector like banks, auto, oil, infra, IT and so on. The stocks not in the Nifty 50 groups also mainly follow the Index.
But my point is, Lot of stocks have shown strong bearish pattern of Head & Shoulders on the charts, some of them are in recent past - just before a couple of months, and the breakout of neckline has been recorded in very recent past. Some of them are:
5. Relcapita, l
and lot of other stocks. All the stocks have achieved thier respective highs and then reverted from pick forming H&S formation in the daily charts in the last 12 months. Though the formations of H&S has occure in different time frames.
These are the stocks going in downward direction since quirte some time and we are also following them generating periodic sell calls. For example, we gave sell call of BPCL in 9th February 2016 at 825.20 and it hit the 2nd target of 785 in just 4 days. Our 2nd target usually falls around 5%. 40 Rs in 4 days, if traded with the lot size of 600 have generated 24000 Rs per lot profit. Investment(Margin) required was jsut about 65000 Rs. Whooping 36% profit earned.
Similarly Arvind gave neckline breakout on 4th February 2016 at 287.55 Rs. After that it went down to 235 (18% 0r 52.55 Rs) on 29th February in 24 days. Take it in this way. If some one had shorted on lot in futures on the day of neckline breakout, he might would have earned 88000 Rs as the lot size is of 1700 for Arvind and the price came down 52 Rs from the neckline break. Though it would have taken 25 days to achieve this much of profit.
Now, almost all the stocks have been registered considerable reversal today, the fact is that no one have get enough upmove to break the neckline in upward direction from below. On the other hand, today's rally was due to the good buying by FIIs. FII buying has arrived after considerable time. This was the day when DIIs were on selling part. This also is happening after a long time.
The matter of worry is that the rally is completely depended on FII activity. If, at some point of time, FIIs againg start selling, the market may move on the downside.
One more thing also required to be considered. Monthly chart of Nifty. The long term support of Nifty monthly candle is at around 6700. If FII starts selling, and Nifty rally ends before breaking the crucial levels of 7550 and 7980, the index again may tend to touch this bottom on monthly candle. This also can be cross checked by the individual stocks neckline broken or not. If majority of stock gets it respective neckline broken on upward direction and Nifty too breaking the above mentioned resistance levels, the rally will continue and the index may achieve fresh all time high.
Till then be careful and continue to be bullish untill it gives reversal on downward side. It is advisable to exit short positions for the time being.
Happy Trading...Trend is Friend...
- Anand Singh Gaur
- Sunil Kothari