Noiselessness
Newsletter Volume 6 24th May 2017
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Nifty P&F analysis
Chart shown below is 10 x 3 Point & Figure chart of Nifty
Broader market trend is bullish, price is trading above bullish 45 degree trend line Current formation is High Pole which indicates short term weakness Price has formed Triple top bullish formation above 9360 Bullish counts shown on the chart are still open 9250- 9300 is a reference zone. Price will breach bullish trendline and negate the bullish triple top formation hence it will turn bearish below it.
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Below is a P&F X-percent breadth indicator of Nifty 50
Advantage of breadth indicator over price oscillator is that it shows the health of constituents and not just the index price. In P&F X-percent indicator, we call it a neutral zone when it is between 75 and 25. Above chart shows that breadth line has remained in comfortable zone since Feb 2017 when Nifty went up by ~900 points.
Currently, it is at around 25 zone which is the extreme zone. When it approached the extreme zone, it indicates price or time correction hence positional trades can be avoided or allocation should be less.
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Bank Nifty P&F analysis
Below is a 0.50% x 3P&F chart of Bank Nifty showing short and medium term picture.
Bullish count shown during last newsletter is achieved. Chart is bullish and price is trading above 45 degree line. Below is a relative strength chart of Bank Nifty against Nifty.
Currently, Bank nifty is out-performing Nifty and remain bullish unless it closes below 22230.
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Sector Relative Strength analysis
Relative strength charts plot P&F of a ratio chart of two instruments. Price of numerator is outperforming denominator if ratio line is rising. Conversely, it is under-performing denominator if ratio line is falling.
P&F formations help in identifying and scoring the sectors and it’s constitutes based on the RS score matrix. Read here to understand the methodology of scoring a chart based on P&F formation of last three columns.
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Nifty-500 Index: P&F Multi-column breakout list
Below is the list of stocks from Nifty-500 stock group where Triple top bullish formation is active on higher box value (3% x 3 Point & Figure chart). Pattern is considered as active unless basic sell signal is generated in the chart.
Sr Qualification Current Running G/L Stock Name Status No price price % 1 AEGISCHEM 106.9 184.7 72.78% Open 2 AIAENG 1041 1400 34.49% Open 3 AKZOINDIA 1441 1773.8 23.10% Open 4 AMTEKAUTO 39.13 33.95 -13.24% Open 5 APLAPOLLO 468.65 1332.3 184.28% Open 6 ASAHIINDIA 166.55 240.95 44.67% Open 7 ATUL 2453 2400 -2.16% Open 8 AXISBANK 428.9 499.3 16.41% Open 9 BAJFINANACE 924.9 1224.35 32.38% Open 10 BANKINDIA 127.65 141.2 10.61% Open 11 BEML 1104.35 1133.5 2.64% Open 12 BERGEPAINT 166.55 242.45 45.57% Open 13 BIOCON 1010.6 892.7 -11.67% Open 14 BRIGADE 182 245.8 35.05% Open 15 CCL 283.55 287.8 1.50% Open 16 CENTRALBK 110.15 104.9 -4.77% Open 17 DREDGECORP 455 554.45 21.86% Open 18 EIDPARRY 267.25 305.5 14.31% Open 19 ESCORTS 176.7 601.25 240.27% Open 20 EXIDEIND 166.55 222.15 33.38% Open 21 FCONSUMER 24.4 29.25 19.88% Open 22 FINCABLES 267.25 491 83.72% Open 23 FORTIS 204.85 194.35 -5.13% Open 24 GAIL 283.55 390.65 37.77% Open 25 GLAXO 3497.5 3017 -13.74% Closed 26 GODREJCP 1358.25 1758.35 29.46% Open 27 GREENPLY 204.85 275.15 34.32% Open 28 GVKPIL 7.3 5.7 -21.92% Closed 29 HDFCBANK 1137.5 1566.75 37.74% Open 30 HEROMOTOCO 2761 3567.6 29.21% Open
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Sr Qualification Current Running G/L Stock Name Status No price price % 31 HSIL 319.15 337.75 5.83% Open 32 IGARASHI 668.15 820 22.73% Open 33 INDIACEM 95 184.55 94.26% Open 34 INDIGO 952.65 1057.75 11.03% Open 35 INDUSINDBK 981.2 1413.6 44.07% Open 36 IOB 29.15 25.25 -13.38% Open 37 IPAPPM 338.55 303.15 -10.46% Open 38 ITDCEM 113.45 172.95 52.45% Open 39 JSWSTEEL 100.8 189.6 88.10% Open 40 JYOTHYLAB 328.7 372.65 13.37% Open 41 KTKBANK 161.7 157.7 -2.47% Open 42 LT 1621.8 1684.45 3.86% Open 43 M&MFIN 300.8 296.5 -1.43% Open 44 MRF 54654 62519.7 14.39% Open 45 MRPL 113.45 123.3 8.68% Open 46 NH 338.55 295.5 -12.72% Open 47 NHPC 21.7 28.9 33.18% Open 48 PFC 92.25 146.15 58.43% Open 49 PFS 42.8 43.1 0.70% Open 50 PIDILITIND 752.05 720.75 -4.16% Open 51 RCF 51.05 75.5 47.89% Open 52 SAIL 54.2 57.45 6.00% Closed 53 SCHNEIDER 152.45 133.65 -12.33% Open 54 SHILPAMED 611.45 690.9 12.99% Open 55 SKFINDIA 1528.7 1551.2 1.47% Open 56 SOBHA 338.55 372.3 9.97% Open 57 SOLARINDS 708.85 824.5 16.32% Open 58 SUNTV 441.75 783.3 77.32% Open 59 SUPREMEIND 1010.65 1141.55 12.95% Open 60 SUVEN 187.45 174.1 -7.12% Open
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Sr Qualification Current Running G/L Stock Name Status No price price % 61 SYMPHONY 1280.25 1314.95 2.71% Open 62 SYNDIBANK 75 75.75 1.00% Open 63 TATASPONGE 688.2 801.3 16.43% Open 64 TATASTEEL 441.75 483.35 9.42% Open 65 TECHNO 283.55 391.15 37.95% Open 66 THERMAX 924.9 982.7 6.25% Open 67 THOMASCOOK 223.85 208.25 -6.97% Open 68 TRIDENT 54.2 77.7 43.36% Open 69 UFLEX 292.05 340.1 16.45% Open 70 VSTIND 1772.2 3043.8 71.75% Open 71 ZEEL 441.75 509.15 15.26% Open
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The Harami Candlestick Pattern
Harami pattern is a reverse of the engulfing pattern. The Harami pattern is a small real body which is contained within a prior relatively long real body.
Harami pattern is a reversal pattern that indicates trend change especially at market tops. Unlike engulfing pattern, color of real bodies is not important for Harrami pattern. However, when body of candle is green, it is a bullish Harami pattern and when it is red it is a bearish Harami pattern.
Harami" is an old Japanese word for "pregnant." The long candlestick is "the mother" candlestick and the small candlestick as the "baby" or "fetus."
This pattern is similar to Inside day bar pattern but major difference is that while a bar inside pattern requires the high and low be within the price sessions high and low, the harrami candlestick pattern required body of the candle (opening and closing range) to be within the prior tall body.
The smaller the second real body, the more potent the pattern. A harami with a doji on the second session is called a harami cross. The harami cross is a more significant pattern than a regular harami pattern. Unlike the harami pattern, the harami cross is a major reversal pattern.
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Below is chart of Nifty showing Harrami cross pattern.
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What is Matrix and How to read it
Double top buy and Double bottom Sell are basic P&F patterns - they indicate whether a particular chart is bullish or bearish. Though it is advisable to stick to one box-value and timeframe to derive consistent trading results, analysis of multiple timeframes help him in stock selection and identify candidates where multiple timeframe charts are in sync. In other words, when monthly , weekly and daily chart of a particular stock are bullish then it makes sense to trade bullish patterns of that stock even on lower timeframe.
Below are the rules to determine the score in the Matrix
Score is 2 if last signal is Double Top buy and last column is of X.
Score is 1 if last signal is Double Top buy and last column is of O.
Score is -2 if last signal is Double Bottom sell and last column is of O.
Score is -1 if last signal is Double Bottom sell and last column is of X.
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Score is 0 if there is no pattern over last three columns. This typically happens when there is a triangle pattern or a series of inside columns.
Use this scoring methodology, we get to know the score of any stock in a given box-size. If one scans for 4-different box-values of a stock – one gets to know the total score of that stock across those 4-box sizes.
If it is a bullish double top buy formation on all box-values with last column as 'X' - total score will be 8 (2 each), which the maximum score possible. That means, that chart is bullish across the box-values - vice versa for bearish formations. When score is 0 across the box- values, it shows significant convergence or consolidation.
Below is the screenshot of the Matrix that shows the above information for all stocks of a group which can be calculated with a single click in the TradePoint software.
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Renko Support - Resistance Pattern
Below is a chart of Tata Communication showing Renko support and resistance patterns. Objectivity and simplicity of the setup that provides low risk entries are major advantages of this formation.
Renko Double Bottom is a bullish reversal pattern and Renko Double Top is a bearish reversal formation.
Click here to view video explaining Renko charts and above pattern in detail.
Brick-value
Most of the users who track Renko charts use ATR based brick value. The major drawback of such type of method is that chart changes with ATR hence it cannot be traded. It is only useful if one wants to find instrument based on some volatility criteria and then trade them differently.
Even then, we recommend log based Renko charts because they don't change - if brick is plotted it'll remain there. So patterns on these charts can be scanned or tested-back and various systems can be designed.
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Below is a Renko chart of 9400 Put Option during mid May 2017. The chart is plotted on one min timeframe using 5% brick value that shows simple support resistance formations.
Click here to know about our Option training course
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Projecting Engulfing Pattern
Below is a Weekly candlestick chart of Nifty showing engulfing patterns.
Notice the projection techniques applied by extending these candles. Candle engulfing the prior body is a significant candle that indicates one side is overcoming another.
Price is expected to travel up to the length of target formed by candle extension. Bullish projection gets failed if price falls below the bottom of engulfing candle and bearish projection gets negated when price goes above high of the engulfing candle.
20 candle average line is applied on the above chart for trend identification. Projections in direction of trend have got better chances.
Notice that above chart is weekly, same thing can be applied on other timeframe charts but technique is different on daily or intraday timeframe charts. We'll talk about multi candle projection method in our next newsletter.
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Relative Strength - II By B.Krishnakumar
Kindly recall the discussion in the previous newsletter about the concept of relative strength. It is nothing but comparison of one asset class or instrument versus another. The idea is to focus on the ones that are outperforming the other.
The relative strength concept would be analogous to the ranking system we have for sports professionals – right from Tennis, badminton, cricket & football. Just like we expect the top ranked player to perform better than his counterparts, we can focus or bet on stock / sectors that are outperforming or underperforming the benchmark index using Relative Strength charts.
If we use say the Nifty 50 index as our benchmark, we can focus on those stocks and sectors that are doing better than the Nifty 50 when the trend is bullish. While the relative strength study helps in not only focusing on the right sectors / stocks, it also helps in avoiding the relative underperformers, to ensure that the portfolio performs better than the benchmark.
Similarly, when the trend is bearish, we can focus on shorting those sectors / stocks that are performing worse than the benchmark, which is Nifty 50 index in our example.
While traders can focus on shorting these underperforming stocks / sectors, risk averse investors can stay away from these sectors to ensure that there is minimal damage to their portfolio.
Here is the Relative strength chart of Nifty Pharma Index vs the Nifty 50.
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A sell signal was triggered in the above relative strength chart in Dec.2016 and the ratio line also dropped below its moving average immediately after the sell signal. While the Nifty has strengthened since Dec.2016, the pharma index and pharma stocks have been underperformers. An investor would have done well by staying away from the pharma sector as it has been in a downtrend in the relative strength chart.
From a short-term trading perspective too, it would be handy to have a list of stocks that are outperforming and underperforming the benchmark or Nifty 50 index. On a given day, if the underlying trend is bearish for the benchmark, it would make sense to look for shorting opportunities in the stocks or sectors that are underperforming the benchmark and vice- versa.
The TradePoint software has a robust scanner feature to identify such relative outperformers and underperformers. We publish a list of such sectors in our “Nifty Daily Point and Figure setup” blog page of our website. Here is the link http://www.definedge.com/nifty-daily-point-figure-chart/.
Am sure you are equally excited as I am to explore this wonderful concept of Relative Strength to enhance your trading / investment returns.
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Bibliography
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Nison, Steve, Japanese Candlestick Charting Techniques, Prentice Hall Press; 2nd edition,
November 1, 2001.
Murphy, John J., Intermarket Analysis, New Jersey: John Wiley & Sons, Inc., 2004
Pring, Martin J., Technical Analysis Explained: The Successful Investor’s Guide to Spotting
Investment Trends and Turning Points, McGraw-Hill, 2002.
Kirkpatrick, Charles D., and Dahlquist, Julie R. The Complete Resource for Financial Market
Technicians. New Jersey: Pearson Education, Inc., 2007
Du Plessis, Jeremy, The Definitive Guide to Point and Figure: A comprehensive Guide to the
Theory and Practical Use of the Point and Figure Charting Method, Petersfield: Harriman
House Publishing, 2006
Dorsey, Thomas J. Point & Figure charting: The Essential Application for Forecasting and
Tracking Market Prices. Hoboken, New Jersey: John Wiley & Sons, Inc., 2007
Zieg, Kermit C., Point & Figure Commodity & Stock Trading Techniques, Traders Press,
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DISCLAIMER
The information contained in this document is for general purposes only. The views expressed herein are based on internal data, publicly available information and other sources believed to be reliable. We however, do not vouch for the accuracy or the completeness thereof. We are not registered investment analysts and information in the document is shared only for the purpose of education. The document is given in summary form and does not purport to be complete. The information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in future. The investments discussed or recommended in this report may not be suitable for all investors. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein. While acting upon any information or analysis mentioned in this report, investors may please note that neither Definedge solutions / research nor any person connected with any associate companies of Definedge solutions / research accepts any liability arising from the use of the information and views mentioned in this document.
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