NEWSLETTER

MY CHART

Nifty :: Constantly fourth day Nifty close in red.. First time after march low and its indicate mid term trend is change from bullish to bearish.. Now for mid term, exit from all long position at higher level... Most probably if market move up its came down again and break 2-4 line without touch 1-3 line in coming days (Ending Diagonal pattern target 4750 to 4900 still pending).. But for short term go with trend…. Watch two level 4650 for breakout & 4576 for break down.. Due to oversold level may be Nifty break 4650 with international market support on 4th Sep.. Still we advise avoid buy at high.. Our strategy for 4th Sep., up to 4576 buy only in deep with (S.L 4576) and Sell at high (S.L 4700).. Resistance for up move at 4623/4644/4650/4679/4700.. Supports at 4576/4566/4550/4546/4503…

(S S Cheema)

We must say hats off to the Indian markets resilience. Under the same circumstances some time back we may have fallen like there has been no tomorrow. The Global markets are not really playing up but still we are holding on to levels that cannot be called bad really. There has been other things one has to keep in mind like the markets have not broken above 4700 levels really and that its future depends upon convincingly breaking above and sustaining that level. You can take it 4725 – 4750 level or so – it depends how you read the charts and what methodology is used. If we somehow manage to see through these two months – Sep and Oct then I feel there is some good times in store for us. Actually there was a lot of enthusiasm in some quarters that was already seeing markets at 5000 levels. There has been infact so much Put writing happening – just the signal that the markets are optimistic and that may be the soft underbelly. More on it after a moment.

The Global cues are mixed – doing the tango as I say usually. Asia had Nikkei down 0.64%, Hang Seng up 1.23% and Strait Times up 1.11%. Europe ended in red inspite of keeping flat for the majority of the session. FTSE ended down 0.43%, Dax was down 0.35% and CAC ended 0.55% in red. Europe fell on US concerns and US that has had four days of slide found some hope and pushed its way up. The US markets – past the mid session now are crawling to a little higher levels. Dow at the moment is at 0.32% in green, Nasdaq 0.47% in green and S&P 0.42% in green. The US markets too are fighting for foothold around very important support and resistance level. Nasdaq at 2000, S&P at 1000 levels. The chances are bright that the US markets will end up green – max about a percent or so.

As far as the technicals are concerned – today has been the fourth red tick we have seen in the past as many days. The technicals have slowly and steadily turned bearish but some key spots are yet to be conquered by the bears – though they do seem to be in a winning streak. We are in the middle of the Bollinger bands and the 15 EMA still is 5 points below the 3 EMA – meaning that classically the sell signal has till not been generated. MACD is just about to generate a negative divergence – but bullish still. Slow Stochastic the markets are bearish and fast moving to the oversold zone. %K is already in oversold zone and %D line will soon follow it there. TRIX is neutral – or seems like so. RSI still is bullish and has not generated the 50 crossover from top to bottom sell signal. The ADX has dropped even further down to 11 now.

As far as the Options data is concerned – whatever support that we are finding is due to the put writing at every 100 points in Nifty. But what is happening is that now the call writing has also started in the same earnest so the Put call ratio is 1.23. My sense is that If we go further down then the call writing will gather more strength of momentum and eventually our recovering will become difficult. Ofcourse I am assuming that call writing will start at a faster rate it is being done now. The open interest at the various levels is 46.8 lacs put 4600, 44.85 lacs at call 4700, 41 lacs at put 4500, 38 and 36 lacs at calls 4900 and 4800 respectively. If we go below the 4500 mark then the next resistance to fall will come at 4300 nifty levels.. Just for info the call writing in Reliance is 24 lacs plus calls and just 7 lacs something puts and you think that reliance will recover?

So to sum it up – Global cues are positive a bit – the Asian markets will definitely open green and then where they go is anybody’s guess. Mine is that they go red. FIIs continuous selling will keep our markets under pressure for the time being. Charts are either bearish or turning bearish so they will oppose bulls even if they do not support bears. Option data is as of now resisting the markets to fall but may resist the markets recovering if the call build up happens as we creep lower. So a massive selloff or buy out is not likely – we might be expected to move in a range with a closing either side of the flat line.

(NIFTY)

As you can see, today NIFTY closed below Gann critical level. Hence tt looks like stormy weather ahead…

(ss)

It has become very difficult to trade the Futures now. Intraday trades do not yield much as the volatility has dropped. I really want to slap those TV clowns who say that the volatility is high. My foot it is high! This thing moves 40 - 50 points day in and day out and you call it volatile? The 20 day ATR is now at a 4 month low at 118! Coming back to the above chart, there is a trendline break and one would expect prices to react but this is a whipsaw jungle! Prices may go back and forth a million times before you see any clarity. Best thing to do is to stay away. Period. I won't even seriously look at this present set up unless prices work their way outside the bands.

(ss)

Here's a look at the volatility at market tops. Above is the bull market top in 2000.

Above is for the April 2003 - June2004 period.

Above is for June 2004 - June 2006 period.

and the last chart shows 2006 to date. As you will notice, there is one common thing in all of them - volatility is between 2 to 2.4% just before the market changes trend from top to bottom. The current reading is 2.4%. This low reading and the repeated failed attempts to break above 4700 is now a sign of warning of a change in trend. It is better not to speculate anything esp a "crash" like scenario but it will be better to reduce your long positions in Nifty Futures.

We really have a strange situation at hand - every now and then, there are stocks making 52 week highs and in some stocks and sectors like Autos, there is a kind of bull market going on. On the other hand, if we see the Nifty, basically it is not going anywhere - its a locked dead range bound play between 3900 - 4700 for the last three months. Trading in individual stocks has been profitable and this is likely to continue provided the Nifty does not really suffer any serious damage but continues to trade in a largish 3900 - 4700 band. I'm not implying that we will see 3900 but merely taking it as the other end of the range.

Market is going nowhere; but stock specific action seems to be strong in select counters.

Let us look at few charts, and try to find out what they want to communicate.

As always, please note this is not a trading recommendation.

Reliance

Reliance stock is once again back to make or break level of 1870. As you can see in the chart below - Reliance has been completely rangebound between 1870 on downside and 2080 on upside for now approx. 1.5 months.

Source: ChartAlert [www.chartalert.com]

A decisive move out of this range will determine the true trend of not only the stock but also the market. What that direction will be - only time will tell. There is no point guessing and decline in trading interest reflects that traders are not taking that call.

Petronet LNG - breakout move probable

Goldman Sachs in its latest report on August 31 has upgraded Petronet LNG to Buy from neutral with target price of Rs. 90. It means an upside of 20%. Technically, stock is at interesting resistance level of 75 - a level which has not been breached since last 2.5 months.

Source: ChartAlert [www.chartalert.com]

The probability of strong move seems reasonable if stock clears 75 on good volumes. The only risk that seems pretty visible right now - market risk. Hence, a stop loss should be placed at closing below 72.

Chennai Petroleum: Breakout

Yesterday, Chennai Petroleum stock clocked huge volume and broke out above 210. Technically, it means more follow through buying and much higher levels in next few days and weeks. Stop Loss = 204

Source: ChartAlert [www.chartalert.com]

Beware of market risk. Because no stock will be able to avoid correction if market decides to sharply correct from current levels.