Due to a lot of phone calls regrading too less time explaining the charts on TV, I am attaching the charts used in the TV program with comments. I have deliberately refrained from using complex indicators so that the charts are accessible by anyone with rudimentary knowledge of technical analysis.

Bouquets and brickbats welcome 

Objective on analysis  ::

1.Why I feel that the IT sector is on the verge of a breakout and will outperform the NIFTY in the near future

2. What are the status of stocks which constitute the CNX IT Index , which ones to concentrate on and which ones to avoid

Chart 1 ::

We begin our analysis with the comparative charts of  CNX IT Index and NIFTY, the charts are on monthly basis for a long term analysis

The CYAN bars are of CNX IT Index and the YELLOW line is of monthly NIFTY

1. The 9550 high on the IT index is the 2000 KP bull run top

2. The next major high of 5857 achieved in early 2007

3. The level of 4765 is of Jan 2008, when NIFTY made it’s all time high

What the chart tells us ::   The CNX IT index has outperformed the NIFTY by a wide margin over the last 1 year, hence the sector is bullish vis a vis the NIFTY

TIP :: Clicking on the charts will open the chart in a much bigger window

Chart 2 ::

Weekly CNX IT index chart suggests a wedge/flag , suggesting breakout either side. i am biased towards bullish because of two reasons. reason 1, the comparative strength of CNX IT index as outlined in the first chart, and for the 2nd reason continue reading

Chart 3 ::

We are now introducing two well known indicators, RSI ( for momentum) and MACD ( for trend). We are watching early 2009 on the charts, when the weekly RSI gave an advance breakout when the price charts were not suggesting anything. Then we saw the MACD give a buy signal ( remember we are still on weekly charts). Both of these happened in jan 2009 whereas the prices gave a trendline breakout much later in April 2009. Infact we considered this trendline breakout valid and strong because of these two indicators providing buy signals much earlier

Chart 4 ::

The result is known to everyone, explained on the charts itself

Chart 5 ::

Now we are faced with a similar scenario ( technical analysis tells us that history repeats itself), the position of the IT Index is explained on the charts itself.

Infact now a buy signal on MACD coupled with the flag breakout would be explosive in nature resulting in restoration of IT sector as OUTPERFORM

Chart 6 ::

The whole scenario on a single chart

Chart 7 ::

Here I am trying to gauge the internal strength of each stock vis a vis the IT Index

The IT index if the base with 0 (zero)

1. The stocks in the GREEN have already outperformed the IT Index and NIFTY by a wide margin. These stocks are super strong and any dip should be an opportunity to buy.

2. The stocks just below the YELLOW IT index, in light green, are probably heading for a breakout and large upsides are left. They have performed but are not major outperformers till now

3. The stocks in ORANGE though in a strong sector are relative underperformers vis a vis their peers . Use caution if trading these stocks

TKSI in an indicator in which the values of individual stocks vis a vis the base Index and other stocks in the same sector give us an idea of the strength of the stock

TIP :: Clicking on the charts will open the chart in a much bigger window

EMP is a proprietary pattern developed by me which I teach at my seminars. My students must be licking their lips

Chart attached as usual :

Let us examine the bear trap first with help of an intraday chart of Nifty futures ( with volumes). The intraday chart has been marked with different labels which I believe is self explanatory. The breakdown was below 5090 which a lot of other technical analysts ( picked up by some kind souls and posted as comments earlier) hoped would be the breakdown point. In simple technical terms, they were not wrong but technicals  like life, is never that simple. If one notices the patterns of major pivotal stocks which constitute the nifty index, majority were in a position where they could have broken out any time, i.e, they were bullish. One notable exception was Reliance and that stock was used to break down the Nifty. However, since I noticed that a kind of index manipulation was taking place, I guessed that this could be a bear trap and asked to sqoff your Nifty shorts. I too personaly squared off my shorts at 5090-5100 levels. This intuition will come to you also after you have seen the same pattern repeating itself over numerous times. A lot of you have commented correctly that I am more bearish than bullish. However, being a bear makes me an expert on bear moves and this move simply made me uncomfortable ; it felt like a trap. Being a bear, I need to be careful about traps, eh? otherwise I would not have survived so long. Don’t think for a moment that I am speaking about intuition in a sixth sense sort of way, rather after watching thousands of charts and associated near moves, your experinece gives you and edge in watching charts. It is difficult to explain that what I saw in charts in technical terms, but it was visible to my trained eye.

Now the question arises where we go from here. Anther chart once again and this time of the cash Nifty. We have a small flag breakout with two targets, again the chart is self explanatory.  One can go long here with stops below 5070, infact 5050 should be a good stop with filter. Upside targets are 5210 and 5310.

According to Elliot waves, this is indeed a fifth wave with a minimum target of around 5340 wich fits in nicely with a flag breakout.

Keep the good old 5140 level as the point above which the bulls will gain momentum and above 5185 the move will pick up steam and be dramatic. Initially in the morning the market can be sluggish luring other bears to short, hence patience would be required today.

The same trade can be played very well with the help of options also.

Best of luck and happy trading

The reason I am posting this late is that it has come to my notice that some joker is copying this post and emailing it to his clients/friends

Imageshack links for better pics are here ::

http://yfrog.com/0kniftyintra2j

http://yfrog.com/1fflag2j

The reason for this is that despite posting clear trades ( entry, exits and stops) the comments section seems to be in absolute chaos with everyone shouting their own myriad views. Not that one can expect anything else where more than one Bengali is present, each is hell bent on proving his own opinion without any logic whatsoever.

The comments can be broadly categorised in a few categories :

1. The necho kartik ( sorry but the kick of this will be lost to non bengalis) : One who shouts ” ttottal bullish, the market will not stop before 5500″ and immediately changes his opinion to “ttottal bearish, get ready for 4000″ ( the “total” spelling mistake is deliberate). And in both cases it is followed by “Ami bolechhilam”, kindly open a www.aamibolechhilam.com website

2. The quintessential bull – “I will keep on buying even if Nifty goes to zero”, “markets cannot go down, it will go up up and up”, “india growth story”  etc.

3. Nei kaaj to khoi bhaj – I have no work, not even watching the trading screen. Subhadip is a Bengali, I am also a Bengali. Hence I must be the proverbial “bangali kNakra” and go post some idiotic comments on Subhadip’s blog. A Freudian psychoanalysis of these characters would reveal immense frustration with everything in life. Requesting them to read Freudian psychoanalysis would be too taxing to their brains I presume, hence I suggest that you read Sumit Mitra’s article on Bengali and Kolkata in this weeks DESH magazine. Just a line to quote from that which has stayed on with me “bangalir moton kormo bimukh aar uchhasa birohto jatir “….   kono kichu sombhob noi typre kichu ekta chhilo

Just some pointers to all of you ::

1. As the owner of this blog, I can delete/edit/censor any post.I do have the technical permission and the right I presume. The reason I do not do it and WILL NOT DO IT is because I am a firm believer in democracy and freedom of speech.

2. Whatever be your views, it is not a question of right or wrong, you have full right to your opinion BUT kindly do substantiate your logic by the means of information, whether fundamental or technical. Just hot air in the means of ” Ithink this will happen” etc actually does not help anyone, even yourself

3. Some of you have been deleting or editing your own comments if your views are wrong. Please have some courage and stick to your views, it is not  a cardinal sin to be wrong.

4. Stop the slanging match and “I am correct, you are an idiot” mentality in the comments section. All of you are adults I presume. All of us are here to make money, not to prove that who is correct.

I was hoping to post a view on Nifty, but this post became a rant !!

Hence, Nifty view within tomorrow morning , promise. A very interesting scenario has developed in the markets. By the way, did you notice that Nifty has given the highest CLOSING of 2009 today ?

Interesting times ahead, aab ayega maaza !!!

Logical strategy would be to sqoff shorts and wait for clear direction. Extremely aggressive traders can maintain intraday SL to 5140 ( or whatever your selling price)

Today’s high on the cash NIFTY is at 5181, hence traders who have shorted either yesterday or today are into the trade.

I will try to post an analysis tonight itself on methods to follow this trade. Some you have commented correctly that predicting tops is a hazardous game , but I am not trying to predict. I am simply following one of the most basic rules of technical trading “SELL at resistance,BUY at support”.

Comments on the risk reward ratio are also dot on the point. This trade carries a risk of 45 points ( 5185-5140) only, hence expectations of a 100 pointer downmove provides an excellent risk reward ratio of 1:2. By the way, technical rules dictate that a trade should at least be at a risk reward ratio of 1:1.6  for it to be used in a system. Only with this amount of minimum risk reward ratio a system can be profitable over time, if the risk reward ratio is more then it’s even better.

Interestingly,none of the comments discussed anything about how this trade can be done with lower risk through options

More analysis to come by tonight…

Now let us analyse some probable situations
1. The market continues to go up -  In this case, it would be prudent to wait till 5140 which should be an extremely tough resistance to cross. Resistance exists because of the previous tops and the trendline resistance. My stops would be above 5180 in case I get an oppurtunity to short here

2. The market goes down – 4940 would be the last point above which the bulls retain any semblance of control. If 4940 breaks with volume or we get a close below this level, then it would be mayhem all around and the NIFTY would test the 4550 levels at the very least. Stops for this trade would be above 5050
I understand that the stops are extremely large but cannot help given the extreme volatilty.

Reasons for my bearish (bechuda) attitude :
1. RSI(14) divergence
2. MACD divergence coupled with downward sloping MACD line
3.Stochastics(14,3,3) is still sloping downwards

For extreme short term traders (day traders), 5010 is the critical level for tomorrow (1st dec, 2009) below which one can initiate shorts. Supports exist at 4960 and 4940 levels. On the upside, anywhere between 5070-5080 can be a good shorting zone with stops placed above 5085.

My personal trades have been 50/50 longs/shorts on an intraday basis. This kind of volatility helps intraday positions on both sides if entered at correct places.

Be aware that this analysis is based on cash Nifty and hence adjust accordingly if trading futures.

Bigger and clearer picture at   http://yfrog.com/e5nifty2j

A quick and dirty day trade for tomorrow :: Sell EDUCOMP (cash) below 750 with SL 761. Targets are 740 and 725. Do not forget to progressively move the  SL if the trade starts to show a profit

A positional short for futures traders :: Short MARUTI fut if it breaks 1550 on the downside (current closing is 1559). Keep a SL at 1571 levels. Expect slow selling till 1530 as 1530-1550 region has provided support many a times. Mega breakdown if closing is below 1530 and in that case expect 1400 levels on the downside  in the days to come. This trade would be valid for the whole week.

I have a fundamental bias for this trade, read wth tongue firmly in cheek. Personally I feel RITZ sucks bigtime and Tata VISTA simply rocks !!!

Happy trading and happy slanging me (in comments section) 

Reasons follow in another post