Saturday, November 21, 2009

How to play the upmove

It was a Friday second half rally which took everyone by surprise. It looks like the previous high of 5182 for this calendar year could be taken out. So how do we play this upmove?

First there are several confirmations we need to wait for:

1. The fall from 5182 to 4539 was retraced in slower time than the fall. Retracement in slower time could mean that the rise was just a retracement to the fall. The pullback could be 80% of the fall in extreme cases, which in this case would be 5054 +- 30 points for whipsaws. We have already seen a high of 5079. The market corrected to 4933 (a weekly pivot). This fall was 27 pc of the up move from 4539.

2. The trend line joining the lows from 4539 comes to 5083 approx. The index needs to close above this for the uptrend to sustain. Weekly supports come around 5016-5022.

3. The 89% retracement comes to 5111. Beyond this level it is clear that this up move is more than just a retracement.

4. Reliance is 1 stock which has a record date of 1:1 bonus on 27th November. Typically stocks tend to move up after the ex-bonus date. This is also especially because of the perception in people's mind that the stock has become cheap. Reliance is currently trading at Rs 2125. If we look at the charts, it has broken the trend line joining the lows from Oct (Nifty 4539). If it moves up above 2150, it would also break the trend line joining the highs from October. Next would be a first target of Rs 2300.

5. Reliance formed a bullish engulfing pattern on the charts on Friday and also negating the highly bearish 3 black crow pattern.

4. Another advantage of playing Reliance is that if the market tanks, its a solid stock in one's portfolio.

5. The dollar index is strengthening. This could lead to FII unwinding. This needs to be watched. The next week is a shortened week in the US due to Thanksgiving. With our expiry on Thursday, the trend would be clear by Wednesday.

Happy Trading.

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