Saturday, October 24, 2009

How to combine EW with macd

Illustrated here with "IOC" & "Nifty" chart:-
(I have chosen IOC as it is not manipulated, nevertheless widely traded in its sector)
1. When the down trend is nearing its "oversold" &" public apathy" & "Panic" situation, you will notice a +ve div in the down move's 4th & 5th wave down OR in "b" & "c" down OR in "c4" & "c5", there by identifying the start of the 1 st wave.
2. First wave generally gets exhausted with the macd moving into +ve area and this can be fine tuned with the help of hour charts. In underperformers, macd may find it difficult to get into positive territory but moves closer to "0".
3. In the Second wave, macd moves back into negative once again. In outperformers, macd may stay above "0" but moves down closer to "0".
4. Third wave upmove takes macd strongly up to the extreme upsides. Then. in outperformers the macd may move down with prices continuing to move up and as the macd moves up again, prices move much higher. This is where the "novice" investors/ traders read the direction of the macd with prices quite literally and miss a huge upmove..Exhaustion in this uptrend can be gauged from the "gaps", "volume" as well as following the 3rd wave subdivisions in the "hourly charts".
5. Fourth wave moves become triangles to carry out time correction if the third wave was very steep and swift Or an alternation to the second wave(if 2nd is flat, then the 4th is zigzag and vice versa). In underperformers, the macd moves into negative while in outperformers it stays above "0" but comes well off its high reading to set itself for a negative divergence base.
6. Fifth wave or the "froth" or the "speculative move" will bring in mostly the retailers with a herd kind of move to new highs while the macd making a lower high thereby developing a negative divergence. In a strongly trending markets, the 5th wave gets extended with series of negative divergences frustrating the bears and confounding the bulls and the falls happen with a sudden reversal when complacency sets into bulls.
7. During the reversal, the first wave down takes the macd into negative territory and the second wave up into positive and the cycle repeats itself in the opposite direction.

Sounds simple..But as you watch the prices move on your monitor, you generally tend to forget all your lessons. Best EW practioners have "military discipline" in them..those who mean business it in any phase/ aspect of life.
When a trading competition was held in the USA for EW practitioners, most of the toppers had military background which gave them the edge over others in carrying out the commands without questioning.
All the EW followers will admit that the most difficult part of EW practice is "to believe in what one sees" . Correct labeling of the charts once the moves are over for posterity is easy . Needless to say here that "you are right only when you make money" and that is "act when you should without questioning".
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Bharti Airtel

To Prashant's query: Having fallen in this settlement in a huge way, this stock will find it difficult to move higher. If any positive sentiment develops or during relief market rallying days, it could move up higher to 350 or 365. It is likely to trade a band of 310 - 350/365 into next settlement and likely to break 310-300 at some time in the next month or so and head lower to 250-270 where it is likely to find some value buying. DOT has tentatively fixed Jan.07.2010 for the "auction of 3G spectrum" and Bharti Airtel is one of the front runner with a huge subscriber base.
The levels mentioned are approximate and on breaking of 310-300 only, the lower levels will be seen. Without hourly data, it is not possible to fix a time frame. This stock may pre run the reversal along with cement & Auto stocks in the coming months.
Invest in FMCG stocks such as ITC, Tata Tea and
Pharma stocks during this corrective period.

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Thursday, October 22, 2009

Banking stocks - the Bogus last rise....

"Mayur" asked: -I am trying to understand Elliot Wave and was looking at the Banking Stocks in Particular.
SBI as we had discussed earlier has completed 5 and is downward.
Is my understanding Correct that ICICI & Axis have completed 3 and are on downward 4?
Also how do these waves of the stocks link with that of the Market / Nifty? What I meant to ask is assuming that the Nifty has completed 5 whereas these stocks have complete 3 though the Nifty comes downward ABC will these stocks attempt 5 upward once the 4 is complete?

My reply: Always read the EW along with macd, you could figure them out fairly easily. And forget about 5s or 3s as during a corrective rally, each stock & indices will behave differently. An "abc" corrective rally can have either "5-3-5" or "3-3-3" or "3-3-5" and more too.
Same chart can be counted differently by two persons. Combine TA, Sentiments, etc, you can then sense the irrational exhuberance on the streets that "Many years of misdeeds" could be rectified in "one statement from the rulers"....Let us not kid ourselves with news but let us get serious with prices..

This "Bogus rally" is not reserved for Banking sector alone, it is there in most of the sectors. Only sector which might swim against will be "IT sector" but even that is "Overbought". Sometimes "OB" stocks can remain "OB" for long too. But when negative divergences persist, take your money and reverse your trades. What other "signals" are we waiting for..?
I can go on posting chart after chart with such negative divergences..

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Tuesday, October 20, 2009

Icici bank - short term view

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