Tuesday, January 24, 2012

Is January 2012 the new October 2011 ???

Nifty has touched the 200 D EMA (5129) today, and a close above it can take to the 200 D MA at 5211 - so the current chart says !!



What does the title mean - 'Is January 2012 the new October 2011 ?'

To see what can happen in the future, it is better to see what happened in the recent past.

The stock market saw a spectacular rally in October 2011 against all odds, when everyone was giving targets for Nifty which were far lower. There was a major congestion zone around the 5170 - 5200 band which was formed from August 2011. Nifty faced a major hurdle at this band and declined all the way to 4728 in early October and then a sharp rally happened which crossed the congestion zone. It cleared all hurdles making a double bottom, a W bottom - all hints of a significant bottoming formation. Nifty went all the way to 5399, and then many started giving targets of 5400--5700.

What happened then - Nifty could not cross the major resistance at 200 DMA (near 5400) and crashed all the way down to 4640 in just 3 weeks.From the bottom of 4640, the next rally took it to 5099, only to make a new low at 4531.

This 'previous swing high' of 5099 was successfully crossed today.

I am afraid, crossing just a previous swing low cannot be a start of the 'next bull run'.

The monthly chart clearly suggests that a bottoming out can be confirmed only on a close above the trend-line (above 5150-75 on a monthly basis). This might seem pretty easy, since there are 4 days left for January to close and the hurdle is only 50 points away.

However, a bottoming out formation needs to happen on the monthly chart too, and it either needs to spend a few weeks near the lows, or keep going down and rising to form a U shaped bottom. A fast rally in the form of a V shape is generally dangerous.

Monthly chart:




Looking at the rally in October and now, it is seen that the sector leading the rally is different in both cases. It was the CNX IT that led the rally then, but it failed to cross the Oct high of 6432, and has crashed below 6000.

CNX IT chart:




The sector that led the rally this time is Banking. The BankNifty too has not been able to cross the October high yet (10080 then, 9885 today). I heard someone saying that the BankNifty is at a level equivalent to Nifty 5400 already - yes, fine, but what about CNX IT.

It is not correct to use this as an explanation that a major bottom is formed.

Looking at the other indices, Midcap and Nifty Junior, one can see that these topped out a little later than Nifty in October (they topped out in early November), and are still way below that top.

Midcap and Nifty Junior:




So, what does this all mean?

I doubt that a bottom has been made, and Nifty might start going down in the first week of February.

Nifty might go sideways in the next week to 10 days, and midcap stocks might still rally (similar to what happened in early November).

One midcap idea:

If the market behaves as mentioned above, Aurobindo Pharma looks promising as long as it does not go below the recent low of 95.5. Aggressive traders can buy now with a stop below 95, and conservative traders can buy above 106 for a target near 125 - 130.








4 comments:

M. Sejil said...

AP. Thanx for the post..Quite informative..

M.Sejil said...

Thanx for the post AP. quite informative..

Divine blessings said...

AP! Auro Pharma.... Gr8 find! Saw ur tweets about it; but only now going though ur blog to find about the same. Thanks
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shouldn't it read as "... crossing just a previous swind HIGH......." in the above line?

Regards,
BK

AP said...

Oops, yes, you are right. It should read 'previous swing high'