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Equity Research

Equity research can be simply termed as research of Equities.

Equity means common shares or stock of Businesses.

Businesses can be

  • Proprietorship
  • Partnerships or
  • Companies

For Equity research or valuation we should be concerned about the companies part only

Research implies thorough understanding of the company under study. We study their strength, weakness and finances to predict what lies in future for the company.

Thus Equity Research is aimed at unraveling value of companies especially those listed on Equity markets. Good research could help investor to create wealth by investing in such researched equities.

So this was the basic idea about what actually is Equity research. In next post we shall learn about its uses in detail and what factors does it depend on!

Anchor your money at “Adani Port”

Stock had been traders pick while markets were rallying to 9000 a year back but since than it has under performed Nifty and so it has been out of radar in watch list. But i guess many of them missed a crucial pattern at the recent bottom. Though i picked it up! Strong reversal pattern “Inverse Head and Shoulder”  has formed and given a confirmation by closing twice on Neckline. Still its better late than Never. Stock has just crossed a small speed breaker of 50 day at 225 and now next resistance is at 100 day EMA which is at 251 coinciding with Inverse H&S pattern. You guys still could trade.

Target on Upside: 251

Stop loss: 210

Crude bottoming out

Finally we have seen some spark in WTI Crude and it has crossed my first possible target $33 which i posted on “Crude could rally a bit from here” on 18th Feb. Interestingly, breakout has given another bullish pattern “Double Bottom” and it the target comes down to $40 which is just above my second target of $38 which is 100 day average. Globally equity markets have picked up on expectation of economy recovery and expecting pull back in demand of Oil around the world. So now we can expect Crude to consolidate and resist near to 100 day avg around $38. 


Lender of Last Resort: Banks

Just after the budget, i posted Bank on Banking and recommended a Long strangle with the upside target of 14650 and surprisingly it is achieved in just 2 sessions.  Bank has proved its characteristic of being Lender of Last Resort but it was profits this time. Had been recommending PSU banks and specially SBI and BoB as a budget pick on various social media and TV Shows. Both of them has given run of their life in last two days which led Nifty Bank crossing downside channel convincingly on the upside. Even the positive divergence on my last post has worked out well. But now it shall approach small resistance at 50 day average which is around 15300-15400.  RSI is surely suggesting upside but we may witness minor wave correction which could be steep one. Looking at the global markets and the strength of buying in cash markets, we can be biased to be still holding long for the upside in coming days. So stay long on Banking Stocks and index

Recommended Strategy:

Buy 15100 CE and Sell 15500 CE: Net Payout =422-248=174

Exit 15100 CE on my tgt of 15350 on Nifty Bank.

Double Dhamaka on Nifty

TARGETS ACHIEVED: 7265 and 7350

Today it was Diwali day for traders as “stocks rocket ho gaye”. Nifty after many months gave a strong gap up of more than 90 points. Advance/Decline ratio was almost 9:1 and it was one of the best in recent times. Nifty finally closed on my upside target 7350 which i mentioned two days back at Relationship status: “Complicated” . But interestingly Nifty has also closed over my both resistance levels 7265 n 7363 which i mentioned yesterday in Nifty approaching upside target . So now the medium term outlook is surely changed to a rally but its could be just a short covering rally also. Confirmation can only above 8200. As a investor and trader we shouldnt wait for the confirmation level and atleast take this rally as a opportunity to cover losses which we made during high volatility in last two expiry. So now we should be biased on the long trades and my near term target is  7440

Previous strategy

Net Payout on premium buy buying 7050 CE and 6900 PE was 239. Today we closed 7050 CE at Rs.360. So if you guys booked profit on this call you net profit is: 360-239=Rs.121/Lot.

And now we are still holding 6900 PE whose cost is Nil now as we have already booked profit on the strategy. So to be on safer side Hold 6900 PE.

Recommended Strategy 

Buy 7400 CE and Sell 7600 CE= Net Payout is 48.95-123.80= 74.85

So my cost of strategy is 74.85/lot

We recommend to book profit on 7400 CE on my target 7440.

For any queries feel free to contact me by replying to this post.


Its Time-out for Gold

Gold had given a good run up since last one year, when interest in the Equities had faded off. But now things could change and money could flow back into Equities after government wining trust back through a budget which was surely repairing our Fiscal targets. Two more fundamental reasons for Domestic Gold to witness sell-off are, appreciating rupee  and sell-off in International gold. Equity markets around the world have seen a quick rally from almost 200 Weekly SMA and so alternative investment asset gold has to see a profit booking.

Technically as chart suggest, a wedge pattern breakout has been confirmed today at 29200 which is trigger level for Shorting gold.  Indicators on the daily chart are also in overbought zone supporting the wedge breakout. Though Confirmation depends on todays closing but i would take a risk early considering cross market analysis.

Recommended Strategy: Sell Gold (CMP:29130) Tgt: 28000 SL: 29800  

Tenents of Dow Theory

Now lets list down some ideas of Charles Dow,  which are considered to be roots of technical research.  Across other books and website number of ideas listed may differ but overall, they are included in the broader categories as listed below:

  • Average Discounts Everything

This idea states that markets reflect every possible knowable factor that affects overall supply and demand, which me mentioned in our post earlier. This is considered to be the basic premises of stock market

  • Market has 3 trends

Any asset class, or markets, behave in three basic trends as Follow:

  1. Uptrend: Dow defines uptrend as a situation as each successive higher high on the price than the previous rally and successive low is also higher than the previous rally
  2. Downtrend: He defined it as a situation with lower low than the previous rally and lower high as Downtrend
  3. Continuation trend: It is defined as the situation where price trades in a particular range between the two rallies.

Dow considered three parts of each trend which are termed as primary, secondary and minor. He compared it with a wave where primary trend represents a tide, and secondary trend represents a wave which makes up for tide. While minor trends are considered to be ripples of the sea. It is generally considered that Secondary wave retraces 50% on avg of primary trend. It is just the most occurring retracement level while there are many other possibilities too.   

  • Major Trend has three phases

This idea simply states that each trend unfolds in three phases of markets

  1. Accumulation: A phase which represents informed buying or astute investors buying which takes place just after the bad news prevailed in the market. While common traders and investors are still bearish on the markets, this phase is controlled by insider buyers or fund managers
  2. Public participation phase: This phase is considered to be the longest one where all the common investors and traders are convinced of a reversal and they jump in to buy. Even technical trend followers begin to participate in the trend.
  3. Distribution phase: This is the end of the rally phase which is commonly signaled by the increasingly bullish headlines on magazines and newspaper. This is the time where same informed investors of accumulation phase starts exiting the position. High of the rally is pinched during this phase
  • Average must confirm each other.

Average here is referred to indices of the market. This idea of Dow states that any two averages which reflects a bunch of stocks traded should confirm each others trend. As an example, it means that Nifty and Nifty bank in India, should move in the same trend on any point of time and if they are not trending in the same direction, then the divergence should be considered for trading.

  • Volume must confirm the trend

Volume is one the most crucial tenant after the price to be considered for technical research. This idea states that any price movement or trend must be associated with volumes. If the major trend is bullish, than each rally should be seen with Volumes while vice-versa for bearish trend.

  • Trend is assumed to be intact until reversal signal

A trend is said to be intact until any clear sign of reversal is seen on the charts. So, as we go deeper into analysis, we will come across many tools which are designed to sign a reversal and until they are not spotted on charts, we should consider a reversal.

So this were the basic ideas or tenants of Dow theory which should be considered as pillars for learning or practicing technical analysis.  In next post we will conclude Dow theory and move on to the next step.

Father of Technical Analysis

After we got some basics clear on ‘What is Technical Analysis’ and cleared some myths on the same, now lets get familiar with the roots of technical.

In 1882, Charles Dow and Edward Jones founded Dow Jones and Company. It is believed by most technical analysts that most theories where founded by DOW and he published his ideas while he wrote for Wall street Journal. Basic ideas of Dow is considered to be the pillars of technical analysis.

Dow was the first person to publish first ever stock market average which consisted of 11 stocks on 3rd July 1884. But after few year in 1897, DOW realized that two separate indices were required to gauge economy and then he constructed a 12 stock industrial average and 20 stocks average. As the Economy expanded, more and more stocks were included in the industrial index to gauge economy better and by 1928 , 30 stocks were included in the index.

Interestingly Dow has never written a book, but he had published his ideas in Wall Street Journal editorials. After his death in 1903, S.A. Nelson, complied everything in one book and it coined the word, “Dow Theory”, which is considered to be a based for learning technical analysis.

There are few basic tenants of the theory which helps to analyze stock and economy at any point of time. I shall discuss in detail on the theory in my next post.

Relationship status: “Complicated”

Last week we saw that Nifty kissed support at 6960 and the relationship was upto that kiss only for the last week. But today it got more complicated between supports and Nifty. Today it went more than a kiss below 6960 and it felt that relationship would go much beyond, but they fell apart and couldnt sustain for a day too! Nifty managed to close above support level of 6960 but it has left relationship status too: “Complicated” after its behavior in intraday. Its getting more difficult to take some call on the Daily charts so have considered Weekly charts for my analysis today. As you all could noticed in the attached chart, Nifty has taken back support of 200 Weekly average at around 6870 (yellow line), but still the week is left and anything could happen. On the second point of support, Nifty has closed exactly at the downside channel line support which is crucial as the channel is intact since the high last year. So now all eyes is surely on weekly close. BUT i could support a probable crossover on weekly chart which i have circled on the top. That are 50 and 100 weekly averages and its about to give a bearish crossover, and this could be for a pretty much long time. So we need to surely lookout for it through the week. So what next if we close below 6960? Then, we could surely see 6640 as i have circled red on the charts. 6640 has got more importance as its a Fibonacci support of rally from 5118-9119 and it is also coinciding with white trend line, which is intact since the low of 2252 in 2008. So, to sum up, Nifty is still in a complicated status and 6650 seems to be coming while on upside 7150 is strong resistance.  So may be need to stay cautious through this week on Index

Recommended Strategy for investor is Long Strangle: Buy 7050 CE Nifty and Buy 6900 PE Nifty

Cost and profit of strategy:

Premium of 7050 CE is 130 + Premium on 6900 PE is 109.80 = Premium payout of 239.80

Upside target: 7350 for the series:  Profit( 7350-7050)= 300 Points- Cost 239.80 = Rs. 60 

Downside target: 6600 for the series: Profit (6900-6600)=300 points-Cost 239.80= Rs.60

So if you are a investor, you can surely hedge your portfolio with this Strangle.

While risk takers can surely wait for either level and than take a long or short call on Nifty with a future

Bank on Banking

Banking stock has been the most under performing in the recent times. Especially, PSU Banks had been the most hard hit on NPA Concerns. But finally Nifty Bank charts are giving some positive divergence at the CMP:14036 with respective to RSI and Volume. As we all can notice in the chart attached, index has been trending in the downside channel, so the view for a short term still can be intact with Bearish but, looking the divergence as marked between the Nifty Bank against RSI and Volume,  we can take a bit risk at CMP. Already Budget was announced, and primarily studying it at a flash it is saying its positive for the Banking sector as govt has set aside a fund for PSU Bank’s NPA and also now analyst are expecting a rate cut before before next policy. Even the great cut on Fiscal Deficit is the achievement for the Indian economy. So surely one can take a risk on Nifty bank at CMP with the support from the PSU Banks,

Recommended Strategy for Risk Takers: Buy Nifty Bank 1 lot and Hedge with 13800 PE March


Recommended Strategy for Long Traders: Create a long Strangle with buying 14300 CE March and 13900 PE March on Nifty bank


Tgt for this expiry:14650 

Stop loss: 13600