Saturday, October 3, 2009
Thanks to an eye-opening Comment by a reader in my previous posting related to IDFC, that I realize that posting free calls on a blog is a thankless job. I wonder, as commented by that particular reader, as to whether Technical Analysis is just as good as you want the data to be interpreted. I kept wondering- aren't charts a reflection of the demand-supply scenario in the market? Well, I am not here to discuss about all this as of now. But, one must remember, trading is like a coin. It has two sides- Stop loss and Targets. It is impossible that all trading calls will click.
But, I have come to a conclusion that I will not post calls on this blog. But I shall keep posting my views on the stock or index. I shall present chart view from my side & leave the decision of trading call on the readers themselves who track this blog. The crucial entry, exit, stop loss and trailing stop loss points will have to be determined by the readers themselves. I would be more involved in providing stock ideas and material which could be more of educational in nature & not recommendation to Buy or Sell whatsoever.
Traders are free to trade whenever they feel fit and take their own due-diligent decision to trade depending upon their intellectual to judge the viability of my views.
Trading View on Jaiprakash Hydro-Power
In the prevailing positive momentum for the markets, have markets given a miss to one of their trading favourite among the momentum stocks i.e., JP Hydro ??
Pennant is a short-term continuation pattern which is characterized by (triangular) consolidation & resumption of the move in the previous trending direction. This pattern also features a sharp decline in volume during the consolidation phase. There are signs that this particular pattern could be emerging on the counter of JP Hydro.
Charts Courtesy: www.icharts.in
Investopedia.com defines Pennant as, "A continuation pattern in technical analysis formed when there is a large movement in a stock, the flagpole, followed by a consolidation period with converging trend lines, the pennant, followed by a breakout movement in the same direction as the initial large movement, the second half of the flagpole."
Without going much into detail regarding the working of the Pennant pattern, as can be seen on the above chart of JP Hydro- the stock has witnessed an up move during the month of July from Rs.65 to Rs.85. However, since then the stock has gone into a long consolidation for the following 2-3 months hinting towards formation of a Pennant pattern.
The consolidation zone typically reflects features of range bound movement with in the converging trend lines backed by declining volumes. The breakout from this long consolidating pattern could herald a rally up to Rs.100-110 in short duration of time. Note: Traders should be cautious if the stock breaks substantially downward below Rs.78 mark.
Traders can use various trading techniques which best suits their risk appetite or judgement profile. One option is to trade once the stock breaks past the upper trend line of the triangle for further confirmation of the emergence of the Pennant pattern in the counter. Second option could be to build long positions around current price with Stop loss at the lower trend line defining downside support.
In Nifty, as we can see from the above chart that the market is steadily moving up but in a narrow range. I have highlighted two trend lines (blue lines) which is acting as support and resistance for the market on either sides. My view is that if markets were to break past the upper trend line, than we could witness a steeper rally up to Nifty 5250-5450 levels in times to come over shorter duration.
However, currently Nifty is resting very near to the upper trend line of the range which could be a reason to be cautious until we get a thorough breakout from the range. There is a downside support around Nifty 4930-4950 zone. So, vaguely, we can consider nifty with in narrow range of 4930-5125. A bigger market move needs a break past this range with a weekly closing.
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