Technical analysis tool Archives | MarketSmith India Blog

April 28, 2020April 29, 2020

Share Market Tips As Nifty Ends Higher in a Volatile Session

Today’s Action

Nifty, +1.1%; Sensex, +1.2%; Nifty Midcap, +1.3%; Nifty Smallcap, +0.7%; Model Portfolio, +0.00%

Nifty opened up to solid gains this morning. It remained volatile during the day but managed to closed in the upper half of the day’s range. Banking stocks led the gains today, especially private banks. On the flip side, Nifty Pharma and FMCG were each down 1–2%. Of 2,110 stocks traded, 985 advanced, 807 declined, and the remaining traded flat.

Our primary indicators remain healthy as the distribution count is zero and leaders are acting reasonably well. Yesterday, distribution day count was down to zero as Nifty rallied 5% from the last distribution day that occurred on April 15. We remain in a Confirmed Uptrend and are open to increasing risk selectively in quality names coming out of proper bases.

Though distribution day is a primary indicator of market weakness, one should also keep a check on other indicators. When in a Confirmed Uptrend, it is an anomaly to see heavy volume with no upward price progress and if we see clusters of this activity we suspect that the momentum may have shifted.

Currently, picking up the stock from a sector as a whole in positive momentum becomes important. Group rank feature can be very helpful. Look for stocks that are among the top 40 groups and show improvement in rank. It has been observed that what is breaking out of a proper base and among top group rank is working well. It is also important that investors don’t play all their cards at once. In our portfolio, we are skewed toward Pharma and Chemical stocks. In the last few days, we had a decent amount of quality leaders in these sectors trading through justifiable entry points.

We would suggest adopting an investment approach where you begin with a small allocation and increase it as and when the market advances further. Without trying to predict and decode stories, we will take what the market gives us and continue to monitor unfolding conditions.

Key News

Axis Bank: The board approved the acquisition of 29% stake in Max Life Insurance. The stock closed 6.5% higher.

Jk Paper: The board approved the buyback of equity shares at a price not exceeding Rs 130 per share and for an amount not exceeding Rs 100 crore. The stock advanced 4%.

T V S Motor: The company approves issuing NCDs up to Rs 500 crore on a private placement basis. The stock closed 1% lower.

Natco Pharma: The company gets USFDA approval for its first sANDA product from its new drug formulations facility in Visakhapatnam. The stock closed 1% lower.

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April 25, 2020April 27, 2020

Reading Stock Charts: How to Count Bases And Why You Should?

Over the last couple of months, we discussed about identifying a correct buy point using common chart pattern/base formation such as cup-with-handle, double bottom, and flat base. Along with the type of base, it is important to understand the stages of base.

Stages begin at one and increase with each subsequent base pattern formed. The magnitude of the move between two base patterns will determine whether the stage moves numerically or alphabetically. If the price move from the pivot point of the prior base to the left side high of the current base is 20% or more, the stage will increase by a factor of 1—for example, from Stage 1 to Stage 2.

If the price move is less than 20%, the stage will increase by an alphabetic factor—Stage 1a to Stage 1b.

The base stage and count are always reset to 1 once an intraday low price undercuts the low of a previous base.

The current leaders in the market have formed both early- and late-stage bases. Base stages help investors identify the progress a stock has made in its price advance, the biggest clue to a stock’s remaining growth potential.

It is a good idea to track the number of bases a stock has formed during its current run-up. As a rule of thumb, try to buy stocks that are breaking out of the first or second base of their run. Late-stage bases are riskier. Late-stage means a base that is number three or higher in the base count.

After forming a fourth base, most growth stocks can’t rally much further, if at all. What usually follows is a long, steep slide. After a stock has had a large advance without a major correction, the probabilities are greater that institutional investors will cash in their profits and push the price into a serious decline.

By the time a stock forms a late-stage base, it is usually widely known to investors and running short on fresh buyers. In addition, the late-stage base tends to have unsteady price swings, bouts of strong selling, or other flaws. It is the chart’s way of telling you that the best buying opportunities are gone.

Late-stage patterns can work and sometimes do lead to nice gains, but you should understand that they involve more risk. If you buy a stock on a late-stage breakout, be sure to cut your losses quickly if the stock fails to gain traction and begins to head south.

Related:Cup-with-handle base

Double Bottom Base

Flat base

Read our last week’s article on:Breakouts: Key to Materialize Gains

Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.