Trend Trader

A PREMIUM PRODUCT FROM

Volume 17, Feb 26. 2007

TREND TRADER

CHARTADVISE

EXECUTIVE SUMMARY SENSEX TRENDS

NIFTY

Long: UP

Medium: Up Short: Up

Month

Week

Month

Week

Neutral

13850-13925

13880-14040

4000-4030

3995-4010

Support

13775-506-205044 14510-929-1553215722

13307-1293612562-12304 13692-1421814506-14832

4092-4053-39063888 4222-4361-44324562

3845-38163754-3660 4081-41044162-4270

Resistance

Highlights of last week

Pointers for the coming week

• Trends hit the skids as the prices drop sharply on the last two sessions of the week.

• Rally in the short-term signals was quick terminated and now extension of down trends are being threatened.

• Participation in the decline was wide and volumes were also decent indicating some fresh selling. • Arbitrage positions unwinding was part of the selling in the last week. • All the sector indices in the Bse ended in the negative underscoring the wide breadth of the decline that was witnessed in the last week.

• Medium-term signals also are beginning to waver and extension of short-term signals would trigger bigger reactions ahead. • Expectations of the budget, economic surve, railway budget etc to drive sentiments this week.

• Trapped buyers will ensure that upmoves would be a bit staggered, at least initially.

CHARTADVISE RECOMMENDED POSITIONS Long Term: Bullish. Hold all Investments. If weakness seen, then exit lower quality stocks. Medium-Term: Bullishness faltering. Weak sectors to be exited during next set of rallies. Short-Term: Weak. Use rallies to exit from trading long positions. Avoid fresh investments unless good follow thru is visible on the trends of the stocks considered for buying.

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Volume 17, Feb 26, 2007

Page 2

Page 2

INDEX VIEW: Short-term declines look set to extend. Sentiment The biggest casualty over the last week was the sentiment. The crawl of the past several sessions had already introduced a feeling that the market may not be as strong as it should be and therefore led to a situation where people were actually looking for dips. Of course, at the higher levels, there is never a dearth of people who keep calling for 1000 point drops. Ultimately, one of the days they too have to be right- like a stuck clock is right twice in a day. Perhaps, last week was their day in the sun.

found them on the charts up until last week. Read those facts a few times over and then decide for yourself what the situation is.

There is one more problem here. In the market, at any given point of time, there can be several situations- all of which are real. Many people cannot even recognize or accept the existence of such a possibility. It is almost like what quantum physics has said- that a person can be in two different places at the same time! All of us therefore need to know, with some degree of clarity, what is our situation. Once this is defined then look at The thing with such calls is that it is the one that sticks the relevant market situation and its related reality. For most in the minds of people. Because it is what they fear example, for a day trader or a short-term trader, whether the most- that the market will decline. Inherently, we are the market is going to fall by 500 or 1000 points (or rise) all bulls and are always looking for reasons why the maris largely irrelevant. He should be more concerned ket should move higher. But as soon as we have some about the next 50-100 points only. Because that is the investment or trading positions, we begin to fear that the only situation that is really relevant to him. But for a long market will actually decline. Conveniently, there are lots pull investor, the details relating to long-term signals is a of people telling us all the time how, when, where and by lot more important and he should make an effort to look how much the market will move up. But calling for market beyond the noise of the short-term and see how those declines is different. Even though people say it, most of signals are set up. them don’t even believe it themselves. Because if they did, then they would have to sell out too! And who wants Perhaps we have rambled on more than necessary on a to have that risk? Rather hold on to something and suffer subject that is not really everyone’s cup of tea. Well, not to worry. If you thought all the above was just some psyalong with all the others rather than be a hero and sell chological gibberish, you wasted about 2 minutes of and find that you are the only one who sold! But they often remember the last one who told him “long time ago” your life. But for a few who lean towards more contemplation about the market might value its content, finding about the decline. They forget all the others who told 14500 Bse Sensex 30 C (13,827.77, 14,060.35, 13,763.39, 13,860.52, +73.6094) its value worth the time taken to read it. them, also long time ago, that the market would go up. Because they themselves believe it will and hence you 14000 Chart Setup are only telling them what they already know! 13500 13000 Perhaps that was a bit heavy for a Monday morning read? But we felt it is important that readers understand12500 the aspect of market talk because it is what you hear 12000 around you that influences your thought process and thereby your own self talk. The self talk is what finally 11500 determines your action. For your action to be correct, the 11000 correct thinking needs to be applied to the market. 10500

And what, one may well ask, is the correct thinking proc-10000 ess? We don’t claim to have the answers. But with our 9500 long experience in the market we certainly know this. When the bearish consensus borders on 100%, the mar-9000 ket isn’t going where the majority is expecting it to. Look 8500 at the facts of the market and its trends- the actual facts.30000 25000 Not what is only shown to you briefly- on channels, in the 20000 press, in the research reports etc etc. 15000 10000

We have laid down what we believe are the facts as we 5000

(Continued on page 3)

7 24 31 7 13 21 29 5 12 19 26 2 9 16 25 30 7 14 21 28 4 11 18 25 1 8 15 22 29 6 13 21 27 3 10 17 24 1 8 15 22 29 5 12 19 26 April May June July August September October November December 2007

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Page 3

Volume 17, Feb 26, 2007

INDEX VIEW: contd Lets first look at some short-term set ups. Shown above is the 30 minute chart of the Nifty futures. There are several points that would suggest that we may have already put in a low on Friday. The move is perfectly channeled. (see the green channel lines). Next segments AB and CD are related by an almost perfect relation of 1:1. The Friday low was 2.618 extension of the first down leg of the decline that began from the point C. Next both the points B and D were on the 45 degree angle line projected downward from X. Finally, the bottom of Friday was a 1.618 time extension of the time leg of X to A. Now that is certainly a good bunching up of a diverse number of factors and swing objectives. This scenario is valid mainly for day traders and shortterm players. It shows that the probability is quite bright that we may see an upward rally during this week, perhaps beginning as early as Monday. If the channel is to remain patent then the next rally should peter out around the 4100 levels and may take about 10 trading sessions or so. For the next level player, check out the following chart. This is the daily chart of the sensex for the past year or so

the recent dips stayed above this support line. Friday’s fall is now threatening to move below this recent support. The stochastic oscillator has a good strength band at the top and hence the ongoing dip was a buy. But the market shown a slight change in pattern with the revival not building up sufficient upward momentum, unlike any time in the past. A second test of the momentum strength is in progress and it remains to be seen whether this will survive or succeed. The two time frame oscillators (5/35 and 10/70) are both still positive, the latter comfortably so. But divergences are evident. Nevertheless, without trend breaks these are mere warnings. The 5-35 is still in the positive but may wilt if declines extend further. The 10-70 is quite comfortably poised and hence may remain undisturbed. What this set up of the market shows is that the near term trend for the active investor and trader may be a bit dicey. The trend is turning a bit vulnerable here and further extension of the weakness seen last week could probably pull the plug on the near term and we may get further dips. The next halt could well be around the lower pitchfork channel and that is a good distance away. The short-term picture (above) is arguing against such a decline occurring and since the momentum indicators are still holding out, one can expect that the near term supports may hold and the trend could yet survive. Nevertheless, active players need to be on their toes right now as they may be called upon into action. Note that if the support survives, they have a buy set up too! So proactive action is a must for such players. This scenario for the next higher set of players

with stochastic and Macd (two different cycles) added below. The price chart also has the pitchfork channels. The following can be noted in the chart. The prices made a high above the median line and then have been struggling to get past the median line even as they reached a new high. A 0.5 channel line has also been drawn within the pitchfork channels and it was seen that (Continued on page 4)

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Page 4

Volume 17, Feb 26, 2007

INDEX VIEW: contd The chart 3 is weekly sensex with trendlines and ADX and trend Macd indicators added. Findings are Break of the intermediate term support trendline. Major support trendline quite a distance away from the current levels. DI lines have crossed negative after many months. ADX line has been down since May 06 MACD histogram shows a possible wave 5 formation set up at the recent high as the indicator shows a divergence after a drop to neutral levels in May-Jun 6. This chart shows that the intermediate term signals are also on the verge of turning weak and some beginning in that direction is already made. Prices have broken below the intermediate term support trendline and this would now trigger the oscillator signals. Thus this chart is already into a bearish mode. However, higher time frame charts need to be reconfirmed by action in the lower time frame charts. Here we find the evidence is just about gathering (as discussed earlier) and once that happens, there shall be a simultaneous triggering at the next higher time frame. Therefore the immediate future holds relevance for intermediate term players also.

and has improved its levels in recent months indicating fresh inflow of money into the market. This situation shows that the long-term signals are intact and the current weakness in the short-term is only a gyration within an overall bullish long-term. Hence those playing the market across the long-term need not worry about the near term fluctuations that may appear in the near future. Likely targets if short-term declines ensue

And finally, this situation for the long-term players.

The sharp drop of the last week has set up possibilities of further declines and a retest of the earlier swing lows. The Jan low is at 13305/3811 while the Dec 06 low is at 12795/3656. As we have mentioned in earlier letters, the index can pull back and even break the last swing low but seldom breaks the second swing low back if the trend has to be maintained. Thus we expect the prices to come down to levels between the two prior swing lows. In the chart above we have overlaid a short-term pitchfork and here we find that the median line is around 3850 levels. Since the market has already hit one of the time lines, it is possible that we may have a rally but the lower target zone will remain open until there is some evidence to the contrary. If prices break below this we can look for lower targets ahead and will deal with it in future issues or in our daily updates.

This is sensex monthly charts with Stochastic, CCI and Money flow (all correlated indicators). We find, Uptrend is quite comfortable although some upper shadows have begun to appear. Current month candle is still reasonable sized candle and not exhibiting any bearishness. Stochastic is firmly in the overbought zone and strength band is present. Next dip therefore is a buying opportunity. CCI is positive but losing steam. Divergence is present. The indicator however has been in the positive ever since CONCLUSION AND STRATEGY ON THE LAST PAGE. 2003. Moneyflow has also remained in the positive since 2003

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Volume 17, Feb 26, 2007

Page 5

Sector Indices: Every sector took a knock in the decline of the last week. The breadth readings turned quite negative and we had more declines on all the five trading sessions of the last week. As a result the weekly A-D line was almost at 1:2, a ratio not seen for a while now. The worst hit was Banking as the index reeled under continued unfavourable atmosphere and lost 6% over the week. Earlier strong contenders like All sector indices consumer durables and Teck too wilted under the selling pressure and notched up big losses. Even IT, that had seemed fairly strong in the earlier week- and de- showed losses during the last week. Bank spite a strong Nasdaq and Asian markets- lost ground and shed 4.79% over the index was the worst week. hit with a 6% decline Rally in global metal prices restored some life into the Metals index here and it was the least loser with only 0.87% drop. It was mainly the steel sector units that over the earlier week. contributed to the gains in the metal index. Power cable stocks that had been having a decent time in earlier months lost ground and dropped sharply last week. Looks to be profit taking action here. Profit taking also took toll on the fortunes of Construction stocks (down about 6%) as well as cement and cement products stocks (down about 8%). Among the gainers over the week were stocks from the Entertainment industry. Possibly some sops are expected in the budget? MNC Pharma stocks also looked up a bit.

Sector Index

Close

Wkly Chng

Pivot

BSE METAL INDEX BSE OIL & GAS INDEX BSE CAP.GOODS INDEX CNX IT INDEX BSE MID-CAP INDEX BSE PSUS INDEX BSE HEALTHCARE INDEX BSE SMALL-CAP INDEX BSE AUTO INDEX BSE I.T. SECTOR INDX BSE TECK INDEX BSE FMCG SECTOR INDX BSE CONS.DURABL INDX BSE BANKEX INDEX NSE BANK NIFTY

8798.93 6536.47 9227.83 5527.5 5664.89 5876.34 3610.62 6904.43 5336.65 5261.84 3703.56 1786.28 3708.43 6759.58 5473.6

-0.87 -2.52 -4.27 -4.79 -4.84 -5.05 -5.07 -5.29 -5.31 -5.46 -5.6 -5.62 -5.86 -5.89 -6.3

8849.25 6613.78 9389.86 5632 5773.87 5988 3700.9 7067.53 5446.06 5372.59 3784.68 1826.99 3776.73 6931.76 5616.37

Support Resistance 8667.46 6424.57 9030.55 5406.9 5530.56 5748.47 3499.38 6723.34 5193.54 5133.84 3606.64 1741.72 3600.09 6523.55 5284.58

8980.73 6725.69 9587.14 5752.6 5908.21 6115.88 3812.13 7248.62 5589.18 5500.58 3881.61 1871.55 3885.07 7167.78 5805.38

Sector Watch: Entertainment Industry: Positive trends The stocks from the entertainment sector appear to be in demand. Charts of several of these counters are well placed and show some accumulation patterns. A few already have shown an upside breakout and these include Mukta Arts, TVTN, Accentia Tech, Bag Films etc. Fresh investments of a short-term nature can be considered in these counters at current levels or on declines. Saregama has been into a corrective decline for a while but continues to retain the promise of big moves in the future once the current correction is completed. None of the stocks from the cinema multiplex segment of this industry seem to be in any major trends yet and hence can be ignored for investments for now.

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Volume 17, Feb 26, 2007

Page 6

SHORT-TERM: Spel Semiconductor (31) CURRENT TECHNICAL STATUS: 1. Prices are undergoing consolidation phase after a sharp uptrend. 2. Oscillators and other indicators placed in a bullish mode. 3. Near-term outlook looks bullish and breakout from the sideways move will generate speedier moves It can be noted from the chart alongside that a nice uptrend has been building up in this stock. Prices after giving a sharp rise in first two weeks of January went to hit a high of 38. Finding it difficult to clear September 2005 top, prices slipped into a sideways consolidation phase. In this round, prices managed to hold the 38.2% retracement support and are forming lower shadows near it. With last week’s positive closing, prices have looked up again. Further upside follow thru will bring in speedier moves in this stock. A decisive move beyond 38 will give a breakout from accumulation pattern and opens room for higher targets. One can also observe that the weekly RSI oscillator is holding above 60 and has turned up afresh, indicating momentum is backing the recent turnaround. Buy if above 32 for the short-term targets of 43/54 with stop of 27.

Mukta Arts (71) CURRENT TECHNICAL STATUS: 1. Breaking out of the trend line resistance will generate speedier moves. 2. Volumes have been good with the recent up moves. 3. Higher degree charts also show bullish pattern. Hence current rise may be a signal for bullish trend resumption. Media was one of sector which was in the limelight in the recent sessions. One of the stock to highlight from this sector is Mukta Arts. We can see that this stock has undergoing thru accumulation phase over a period of time. With recent round of strong up moves, prices gave a nice breakout from the intermediate trend line. Giving a positive weekly closing above it is a bullish signal for the short to medium term trend. Prices are now heading towards 92 area. In line with the prices, we also note that the DI has widened up afresh which is a bullish signal for the trend and improving the chances of overcoming 92 level. Buy now and on dips down to 65 for a minimum target of 92. Stop of 10 points.

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Volume 17, Feb 26, 2007

Page 7

SHORT-TERM (contd..): Carol Info (55.40) CURRENT TECHNICAL STATUS: 1. A consistent advance has been in progress on the charts. 2. Picked up well from 21 period moving average support. 3. Overall trend placed in a bullish mode and looks good for further rise ahead. On the short-term charts, prices have been moving in a trended fashion since past several weeks. Last week we saw the stock witness consistent buying activity that led prices to giving a nice weekly closing. This helped the stock to hold the support of 21 period moving average support and bounce back. If prices continue their advances this week we may see it heading towards its prior tops hurdles placed around 65. Near this area it has formed several tops. Crossing this hurdle decisively will resume strong trended moves. Volumes have been in sync with recent rise . Also we find that the weekly CCI oscillator has turned up afresh from the zero area. This is a bullish signal for the trend. With this kind of positive development on the weekly chart on both price and momentum, we suggest buy-

ing at current around 56 for minimum rise to 65 and above it to 82. Place stop of 10 points.

Karutari Networks (235.20) CURRENT TECHNICAL STATUS: 1. Breakout from the trend line on the weekly chart and closed at new high. 2. Stock is currently on a strong uptrend. 3. Momentum readings in support of the breakout. This stock had been struggling to clear the ascending trend line region for a while. Most of its attempts to overcome this hurdle led to the formation of upper shadows. This action of the prices near the resistance area is an indicative of the fact that there was a lot of selling pressure around these levels. Last week’s gap up rise led the stock to give a decisive breakout from the trend line region and has given a strong closing above it. This is a positive development in prices and is clearly seen on the weekly chart appended aside. Adding fuel to the up trend are most of the momentum indicators that have turned up afresh. It has been proving to be positive signal for the trend. Also an increase in volumes accompany the current move. Hence we recommend our readers to buying above 236 for advance 282-296 and above it to 340 levels with stop of 25 points. www.chartadvise.com 602, Rudresh Commercial Complex, 19th Rd, Chembur, Mumbai 400071 Ph: 32925887/25297574

Volume 17, Feb 26, 2007

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CONCLUSION AND STRATEGY FOR THE WEEK The idea of showing the different situations is based on what we wrote under the sentiment section. Readers should choose the time frame and the situation that is relevant to them and decide their course of action. What is right for one person need not be correct for another. Summing up the four scenarios, we find that the long-term signals continue to remain undisturbed. The market will have to undergo much more weakness than what is evident currently before this trend takes a

knock. However, the short-term to intermediate term trends are skating on thin ice and at places, the ice seems to be cracking already. Therefore we may be in for some spot of weakness ahead and hence readers should be ready with some action plan to deal with

….the short-term to intermediate term trends are skating on thin ice and at places, the ice seems to be cracking already!

the same. In earlier letters we had indicated that partial profits should be booked on non-quality items that one may be holding and to tighten stops on other counters. Some of those stops may have been triggered from specific industry groups such as Cement, Fmcg etc. Indices may rally initially but watch for strength before buying into the market once again. If downtrend resumes afresh then we could see Dec06 lows coming in for some retest now.

DISCLAIMER The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of Chartadvise. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose. The recipient should independently evaluate the investment risks. Chartadvise accepts no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. www.chartadvise.com 602, Rudresh Commercial Complex, 19th Rd, Chembur, Mumbai 400071 Ph: 32925887/25297574