May be traders and analyst are busy with Daily charts of Nifty, but i guess many of them have missed last weeks closing on weekly chart. As you all can notice on the chart, last weeks candle has been a Spinning top or may be even doji resisting near to 7560 which is a crossing resistance level of a recent tops downward sloping line and last two years turning point horizontal level. Lets talk about 7560 as the trigger level. Take the extreme left circle which was June’14-Aug’14 period when Nifty has taken rolled over 7560 many times and then finally triggered a spree to buy after NDA taking control at the center. After almost 1.5 years in Aug’15 we traded below 7560 for the first time after Aug’14 but took closing support and closed above the same which is market in the Second box from the left. After witnessing pull back for 2 months, we tested again 7560 in Nov’15-Dec’15 as marked in Pink box. But this time support couldnt sustain much and in Jan’16 we triggered sell when we traded below 7560 for the first time in almost 2 years and we are closing below the same level on weekly basis since then. Since last 2 months we have tried for 4 times to close above the same on weekly charts but we havent been successful. This week is crucial!!! We need to close above 7560 and if we do than only i would trigger strong buy. So keep aside all complicated indicators on charts, simply wait for Weekly closing. Though my Short call initiated on 3rd march on “Nifty in reserve” is intact.
Today was the most boring day for positional traders as we end up nowhere by the end of the day. We can call it a trap day for intraday traders as both bulls and bears were trapped at least once during the session. Traders are in confused state of mind for near term while expiry players are building base on 7200 PUTS as support while resistances are 7500 and 7700 on the call side. Technically markets are overdue for correction but before that we may see some bounce back but than we are expecting profit booking before 31st March. We can expect some high volatility ahead in the month. Though i would sell on rise as i am expecting a downside any time this month after a strong recovery from budget lows. Today’s candle has no clue which side it stands for, so monday opening shall be crucial after FED meet tonight. So finger-crossed till monday.
I may be sounding biased since last few days but i am still sticking with Sell on Rise strategy on Nifty as i have recommended on the post “Nifty in Reserve” Today to fuel more on my view, we have notice a possible “Dark Cloud Cover” candle stick pattern which is a bearish reversal pattern. Conditions of pattern are 1. First candle should be a long green candle. (Yesterdays open: 7436 and close 7531 which is equal to 95 points) 2. Second candle should open above the previous green candle ( Todays open was at 7545 which is above yesterdays high of 7539). 3. Red candle should pierce Green candle and atleast close at 50% of the Green candles body. (Yesterday’s body range is 94 points and 50% is 47, so the close should be around 7485). So as you all can note that almost all the conditions of Dark cloud cover has been full-filled if we ignore 1 point above closing than required on index. As exception of pattern suggest that if at all red candle close above 50% body still it can be considered a reversal pattern. Secondly, looking back at other resistance marks then for the third day today we have resisted near 7544 which is 61.8% fibonacci pull back level of last fall down. Thirdly, We have seen strong writing again on 7500CE, 7600 CE and 7700CE while on the PUT side we have seen much of unwinding suggesting a fear of fall in markets. So my stop loss strategy is intact as i posted in the morning in “Nifty approaching resistance cluster” . Fingers crossed for ECB meeting tonight and i wish it could give me some sell-off sign.
After reading Nifty chart closely today morning, i just came across a probable double bottom pattern which has been confirmed. Though i missed it while breakout but we had already recommended longs on other factors. You might be guessing that now whats the use of it?? Of-course we can be cautious near its target of 7620. Similar resistance levels are obtained from Fibonacci and 7600 Call Option. Even a Downside sloping trend line is approaching around the same level. So now we have almost 5 resistance near 7620-7650 making a strong level for a stop loss on shorts. I would be intact with my short call on Nifty as given in my post “Nifty in reserve” on 3rd march but on stop loss side, i would wait for two closing above 7620 before covering my short trading views and recommend you for the same. Many global events to unfold by monday so my eyes on global markets rather than domestic news!!!
Before starting of with Fundamental research on any particular stock you must have a deep understanding of that business and the sector. There are two broad categories of information which is required i.e., Qualitative and quantitative information for analysis.
Qualitative Information includes insight of the business and industry working which could be obtained through material readings, newspapers , company announcements, recent company development reports, Annual reports of company, management discussion, detailed discussion with management or promoter. For going more deeper, some analyst also interact with employees and customers of company to get a taste of how company works in and out.
Quantitative information includes financial reports i.e., Balance sheet, profit and loss account, Cash flow statement and all other possible reports which marks company’s performance in numeric term.
These prerequisite information is required to project revenues, earnings and other financial parameters of the companies which results into valuation of each share of a company. Generally, analysts forecast 3-5 years of Financial parameters based on the history available. Though there is no fixed rule on the number of years to forecast as it purely dependents on company to company.
However there are few limitations to Equity research as in developing country or under-developed country, industry information is little bit difficult to get as data collection is not that accurate, Secondly, many management of companies are not willing to talk with the analyst or not want to disclose crucial information which could act as a hurdle while carrying out fundamental research.
So this was a brief about what is required to carry out research and what are limitations faced while carrying out research.
My final target $38 has been triggered for long recommendation on WTI Crude which was given on post “Crude could rally a bit from here” on 18th Feb! We saw tremendous rally on the crude last night around the globe which was one of the biggest intra-day rally of 2016. Technically now crude has surely bottomed out for the longer term horizon and we could see continuation of strong short covering in the commodity in near future. But as on weekly chart we could notice that commodity is trading at resistance line around $38 while next resistance is at $40. So for a safe trade we should avoid taking a call on either side for trading in this range and rather wait for a confirmation. So my advise is to wait and watch until we get some strong move out of this range.
In last post in this section, i introduced you to different types of charts used for analysis and now we will go through some factors that should be considered while constructing charts.
- Arithmetic versus Logarithmic Scale
Charts can be plotted using either arithmetic or Logarithmic scale. Difference would be spotted on Y-axis where there will be equal spacing between each unit in Arithmetic scale while there will be equal spacing in percentage terms in Logarithmic scale. So a move on arithmetic charts from 5-10 would equi-distance to 50-55 while on Logarithmic scale, 5-10 move would be equi-distance to 50-100 where both means 100% move in the price. So for larger trend or long price move history Logarithmic scale would be more preferable for analysis.
Volume is one of the most crucial information after price on charts required for analysis. It represent the total amount of trading activity in that asset on that particular time frame taken under analysis. It is represented by a vertical bar at the bottom of any chart drawn. A higher bar means the volume was heavier for the day and vice-versa. And as Dow Theory suggest volume confirmation is more important with the price so you must strictly consider volumes while technical analysis.
- Future Open Interest
Open interest in the future segments is the total number of outstanding or open future contracts that are held by market participants in secondary markets. They can be either longs or shorts or both.
So now you are aware of basic points which are considered along the price for construction of charts. We will explain all the points in detail in future post but should remember all factors while we take other crucial concepts.
Charts represents the traded price of underlying asset during the time frame under study. Charts can be of many different types but mostly commonly used charts are Bar charts and candlestick charts because it shows complete price action on the assets unlike line graph were only closing prices are represented. Charts also accompanied by Volumes and Open interest which are also important to focus on while carrying out technical research
There are Following types of Charts
- Bar Chart
- Line chart
- Candlestick Charts
It was just to make you familiar with different types of charts through this intro post. There many other professional chart patterns too but these are the ones which are most widely used and almost all software’s give facility to plot it.
Banks finally gave some strong rally and it triggered my upside target of 15350 as recommended at Lenders of Last Resort on March 2nd. Strategy recommended was to go long on 15100 Ce and Short 15500 CE. As recommended to 15100 CE should have been covered yesterday which traded last at Rs.500. and recommend to hold 15500 CE forward for next weeks strategy
As you guys can notice in the graph that a “Spinning top” has been embarked on daily charts yesterday and it has exactly pinched high at my red horizontal line which i had intimated you guys in the last post on Nifty Bank. After such a fantastic rally, a intermediate profit booking is expected on banking stocks of almost 50% of their recent rally. Even the Gap unfilled is at 14450 which is coinciding with retrenchment level. Had been tracking options on Friday and found out that writing has been done at 15500 CE and highest Open interest stand out there too suggesting a strong resistance on closing basis. So now traders can take a risk of going short for some gain.
Hold short on 15500 CE which was recommended in last post and now buy 15200 PE
Target: 14650 (Square-off all Options around that level)
Stop-loss: 15500 (Closing basis)
Lets now get through about where and how can we use Equity Research and on what does it depend on!
Equity research depends on the maturity of financial markets in an economy and the extent of market depth and breadth. Indian markets have developed over last two decades and its matured enough to research for. Maturity in developing countries such as India can be seen with Foreign Institutional investment in Equity markets. We could notice that number of registered Foreign Institution Investors have been rising as seen in the graph below which increases breadth of our markets
For the depth of markets we could notice in the graph below that we are receiving FII regularly though they have been in and out quite often depending on the market condition. But if we net it than inflows has been more than out flows in last 5 years
Domestic factor which could judge depth and breadth of the markets is the number of companies that are coming for Initial Public Offerings (IPO). Below graph is the funds raise in recent time by India Companies through IPO. We could see a constant offering which means that market depth is increasing from domestic side too
As our market’s depth and breadth is increasing, need of Equity research rises as we need to analysis our each investment call from different angles and in dept before taking a call. With such a growth in capital markets, brokerage houses and investment bankers have started carrying out research services for their clients. Though such research is more or less targeted towards large institutional investors but now even a small investors are demanding for research before taking investment call. Recently SEBI has also announced Research Analyst Regulations which allows independent firms to carry out research. This step by SEBI has given opportunity to many small start-ups like us (Luvkush Finserve) to carry out professional and verified services in vast field of Research.
Major Uses of Equity Research:
- Making investment decisions
- To determine IPO pricing
- To value mergers and Acquisitions
- For strategic investments in other firms
Now we could get an idea from the above information that Equity research is gaining importance in india and avenue for its uses are increasing. So its crucial for us to understand and learn Equity research for making crucial investment decisions.