Point & Figure Charting

Stock Opportunities Techno-Funda Picks
121

Those who sold earlier at 900+and bought **Ajanta Pharma **around 800 must be a happy lot. I did it myself, and today, the stock made a come back once again. It closed above its 50 EMA of 846 at 881. The next resistance is at 920-980-1000.

La Opala is another stock which is doing all the right things. It took support at 50 EMA at 336, and today hit the upper circuit. It broke the triple top resistance at 360 and is headed towards 390 where it will make another double top. If it breaks this resistance, then one can look at the previous high of 440. This is a strong stock.

Here is the chart:

http://chartink.com/pointfigure/LAOPALA.html

HONDA SIEL:

This stock has given a triple top break out at 460 and is currently on a buy signal.If it breaks 480,its 200 EMA, and the markets are good, this stock should head towards 560-590. Let us see what happens tomorrow.

http://chartink.com/pointfigure/hondapower.html

122

Tony ,

What do you think about ARBL? Amara raja has been taking support at 250 levelsā€¦Do the charts suggest a buy?

123

Rajarshi,

Amara Raja is taking support near its 200 EMA of 236. On the RSI it is near oversold levels and on the CCI it looks to be moving upwards towards the mid point. On the Point and Figure charts too the support remains at 240 where it will make an extended triple top. The next support is at 235. The stock is currently in the O column and on a sell signal, indicating that there are more sellers than buyers. Unless the stock touches 260, the sell signal and sellers being more continues. Once it touches 260 it will enter the X column and will take support close to its 50 EMA. Then the next resistance is at 280-290-320.

Here is the chart:

http://chartink.com/pointfigure/AMARAJABAT.html

124

Hi Tony,

How do you analyse AstraZeneca Pharma charts?

Recently they had to divest 15% to comply with SEBI norms- there was a lot of volatility in prices and seems to be consolidating now. Is it a good time to enter the stock?

125

Prashanth,

Astra Zeneca is a weak stock. Although on a Buy Signal, it is currently in the O column,indicating more sellers than buyers. It has support at 660 and then at 600. For the stock to come into the X column, it has to trade above 800.

http://chartink.com/pointfigure/astrazen.html

From September 2012, the stock has been trading below its 200 EMA and 50 EMA. In a weak market there are very less chances of such stocks making a come back.

http://chartink.com/stocks/astrazen.html

It has to break above its 50 EMA at 784 and continue to trade above those levels for a long time and then make an attempt to touch its 200 EMA at 1124. Under current circumstances, this looks a little difficult. There are more chances of it touches lower levels as mentioned above.

126

COMMON MISTAKE MADE BY INVESTORS

The most common mistake made by investors are that they book their profits early and let their losses run. You may be wondering what I am saying? It just means this:

Suppose you bought a share at Rs. 500 and there after the price drops to 400. It means a 20 % loss. However, if the stock has now to recoup its loss, it has the rise by 25% to once again touch Rs.500. If the price falls further to Rs. 250, then there is a fall of 50%. To recoup this loss the share price has to rise 100%.

On the other hand when an investor sees, his share trending upwards and he is excited of making a small profit, he is in a haste to book his profits fearing that he may lose his opportunity. This is the folly which common investors make.

A smart investor will always cut his losses and let his profits run. If you ingrain this virtue in you, I am sure you will go a long way in having a profitable portfolio.

Another point to note is that there is a loss of opportunity (opportunity cost). If you had booked your loss earlier and saved your capital, you could have invested it in strong stocks. This strategy would have enabled you to cover your losses.

So what does one do in such a scenario? Make a list of the dud stocks one has and decide to sell them and shift the capital in strong stocks which will give you gains.

Strong stocks are the ones which are trading above their Bullish Support Line for a long period of time. Such stocks are considered as being in an overall uptrend. Eg. Ajanta Pharma, Cera Sanitary etc. Trend lines are very helpful in showing the investor which stocks are in a positive trend and moving higher. Weak stocks are the ones trading below the Bullish Support Line. Eg. Unitech, Suzlon etc.

Strong stocks are those which move side ways in an other wise declining market. It suggests that there is adequate demand for such stocks to overcome the supply. Relative strength is a good tool to use to determine such stocks.

Once we know the Trend, Relative Strength of a stock and the individual chart pattern of a stock then one can look at the momentum. Momentum is determined by the moving averages. It can be daily, weekly, monthly. Suppose one chooses the weekly moving average, then one should select the 5 day moving average, (preferably EMA) and the 25 day moving average. When the 5 day moving average crosses above the 25 day moving average from below, we say the momentum is positive and vice versa. Buy stocks with a positive momentum.

The **TREND, RELATIVE STRENGTH, INDIVIDUAL CHARTS AND MOMENTUM **put together ca help us make a list of strong stocks which we can buy and cut our losses in dud stocks.

Please do give your critical feed back generously. Be a miser when you praise.

127

Hi Tony,

Can you provide your technical views on Zydus wellness please?

This FMCG blue eyed Boy, which was once a TED favourite few years ago, has corrected and consolidated for couple of years now and recently started to show vitality(at least on charts).

Is this stock showing early signs of a significant up-move that is due in future as it tried to breach/reach its previous all time highs ?

TIA,

Ravi

128

Ravi,

Zydus is a strong stock which has traded above its 50 and 200 day EMA except for a brief period during March to May. Such stocks are a buy on dips. You missed the chance in March-May. Currently the stock has made a double bottom at 640. It will give a sell signal if it breaches 640 and next support lies at 600, 570 and 540.

I feel it should take support near its 50 day EMA at 570. With the market in turmoil the chances of you getting an entry at these levels is very high. For the stock to come once again into the X column, it has to touch 700. Thereafter the next resistance is at 740 and then, a new high is in the offing.

http://chartink.com/pointfigure/ZYDUSWELL.html

Try to buy this stock when the RSI is below 30(green shaded area) and the CCI (blue shaded area) is below -100. These are oversold levels and chances of a bounce back are very high. Currently the RSI is 59 and CCI is 35.60. I have always benefited from this strategy in good stocks.

http://chartink.com/stocks/zyduswell.html

Nice to see you writing for the first time to me. Do give your feed back too.

129

Thanks Tony.

Thats a very lucid and detailed explanation as well as education at play. I donā€™t intend to buy it any sooner as it was just on my watch list for now so I will wait for further weakness or near attractive support levels mentioned by you.

The above explanation is encouraging me to go thru your point and figure tutorial on technical analysis that you have put up so I will definitely do that.

Your other recent post on common mistakes is also a very apt one as we all would have gone thru that learning curve for sure.I myself still canā€™t adapt to that discipline as I keep watching my laggards in the hope that they will recover to a meaningful level at some point in future for me to get out (btw, those have been some of the mistakes done in my earlier stages of investing, but have paid enough tution fee). As it was not a serious money, may be the next tide will help me clean those sins :).

130

Tony,

At first thanks for your valuable reply and sorry for my late reply to youā€¦

sorry for say that i dont understand the excel sheetā€¦plz tell me in detailsā€¦

Regads,subhajit

131

**

COMMON INVESTORS **

** TREND, put

Thank you share thisā€¦

Regads,

Subhajit

**

132

Hello Tony,In this market scenario is it time to buy stocks or shall we wait more with cashā€¦what do you think?

what does your bullish-bearish percent say?..Awaiting for your valuable reply tonyā€¦

Regards,

Subhajit

133

Subhajit,

I have explained the Bullish Percent concept on March 24, 2013. Please go to page 2 in this section and you will find it. If you still do not understand, I will explain it once again. As for updates on Bullish Percent, it gets updated on Tuesdays and Fridays. So i will try to post it the next day. It entails a lot of data analysis and hence takes a lot of my time. I do it manually. So I have to see the readings of at least 200 stocks to arrive at the results.

I have added one more concept and will be putting it up here. It is called the Sector Relative Strength. This chart I will put up along with Bullish Percent chart.I will try to complete the analysis this week end so all can have the benefit of it.Further I will explain the meaning of Sector Relative Strength and how to read the chart.

Tony

134

SECTOR RELATIVE STRENGTH:

Every sector has a price which is in the form of index value. The relative strength of a sector is calculated by dividing the value of the index of that sector by the index of the market- (either be the BSE Sensex value or Nifty value). For example the value of the Health Care Index as on 18th June was 8763.24 and the BSE Sensex was 19223.28 then you divide 8763.24 by 19223.28. Multiply this value by 100 and you get 45.59. These values are then plotted on the Point and Figure chart.

Those sectors whose charts are in the X column are the strongest. It tells us that the sector is out performing the market as a whole. If the reading on the chart is in the O column then the sector is weak relative to the market as a whole.

As promised, I have added the Sector Relative Strength charts along with the Bullish Percent charts which are updated as of today. You will see that the FMCG and the HEALTH CARE RELATIVE STRENGTH SECTOR CHARTS are in the X column (strong), while the BANKEX is in the O column (weak).

This tells us that it is safer to BUY stocks in the FMCG and Health care sectors. These sectors and the stocks which compose them are Market Leaders at the moment.

Tony

BULL-charts.xlsx (21.9 KB)

135

IMPORTANCE OF MARKET AND SECTOR ANALYSIS

You have noticed I keep writing about Markets and Sectors. Recently I added Sector Relative Strength. Why do I lay so much emphasis on the Market and Sector performance.

Tom Dorsey in his book Trading Tips mentions that a study by the University of Chicago plainly points out the need for technical analysis. They say that a Fundamental Analyst looks only at 20 % of the pie. They usually try to pick out the best stocks in their group. They do not tell you if their group is going to perform well. That is where the major risk lies. Therefore you must use fundamental analysis to help you find what to buy and technical analysis, when to buy.

The author further says that ā€œthe cause of price movement in any given stock is predominantly the function of market and sector risk. 80% of the risk in any given stock is attributable to the market and sector. Yet the typical time allocated for researching a stock is 80% of the actual stock and 20% to the market and sectorā€.

Just like vegetables go in and out of season, so do the sectors. Currently the banking sector is out of season and Pharma and FMCG is the favourite of the investing community.So while evaluating a stock which you wish to buy, do give attention to the Market and the Sector. If the stock is fundamentally good and worthy of investment, and the Market and the Sector to which the stock belongs are Bullish, there is no doubt your pick will fetch you handsome returns.

136

Just wish to share something on which i wrote earlier. This article may be a coincidence, but the facts are true. This is picked from Rakesh Jhunjhunwala blog:

Be With The Trend, Whether In Trading Or In Investments:

Atul SuriĆ¢s next piece of advice is that investors must recognize the trend and flow with it, whether in their investment calls or in their trading calls. Ć¢_Big money is made only when you are with the trend_Ć¢ he says.

He gave a simple illustration to explain the concept. Though the trend of the overall market is down nowadays, the trend of FMCG and Pharma stocks is up and they are hitting new highs every day. An investor who bought stocks like ITC, HUL or Sun Pharma would have made a lot of money even though other investors who invested in other stocks would have made huge losses.

So, a savvy investor should recognize the trend and shift his money into those stocks that are currently in fashion (FMCG and Pharma stocks).

Atul Suri pointed out that sooner or later the trend would change and capital goods and PSU bank stocks would come into fashion. Investors must be on the lookout to spot the change in the trend and be the early movers. If they shift their funds into those stocks at the beginning of the trend, they can make a lot of money, he said.

137

Tony,

Request a TA on Karnataka bank on your overall opinion of the stock.

Disc : I am invested at higher levels.

138

Business Line carries a nice article titled ā€œSteer clear of the urge to averageā€. The article points out to the misconception that when the price of a stock in the portfolio falls, one should buy more of that stock to average the cost in the whole portfolio.

It further goes to state that whenever a trade goes wrong,it is best to admit it. Professional traders never average their purchases when the stock price goes down, but actually do it when the price is rising. The author further goes on to say that it is best to cut your losses and let your profits run.

An example given on averaging : Suppose you buy 100 shares of a stock you like. If the price rises, then you buy 50 more. If it rises further you add 25 more. The next question is when to add more. Those following trend lines and moving averages can add more by making use of these tools.

The lesson: not to average on the way down but always on the way up.

139

Ram,

Your query on Piramal Enterprises:

At the time of writing, the stock is quoting around 490. The stock has broken both the 50 EMA and 200 EMA. It has become weak. On the CCI it is in the oversold territory but on the RSI there is some more time to reach oversold levels.

http://chartink.com/pointfigure/PEL.html

On the Point and Figure charts the stock made a double bottom at 470 which is currently a support zone. If it falls below this then the next level is 450 and 410-20 levels. The stock is currently in the O column and has a sell signal. With markets weak the chances of falling at lower levels is bright.

140

VOLATILITY INDEX:

"The NSEā€™s volatility index or VIX rose 10.4 percent to 21.01, its highest close since June 25, 2012 reflecting the rising volatility in options ahead of the expiry of June derivatives contracts on Thursday " scream the headlines.

These days a lot of investors must be used to hearing such statements being made on TV.

What does this mean for an investor?

The volatility index is a contrarian sentiment indicator which helps determine when the market is very optimistic and when there is fear. When sentiments reach extremes there is always a reversal likely to take place.

Currently there is a sense of extreme bearishness and fear in the market and hence the VIX as it is called is near its highest. The contrary is true when there is extreme optimism when the markets are extremely bullish.

When markets are moving in a trading range or are mildly bullish the volatility index will typically be low.

When studied along with other indicators, investors can draw their own conclusions as to when a reversal is likely to take place. Remember, that this is just one of the indicators and not the be all and end all.

http://chartink.com/stocks/indiavix.html

From the chart above one can see that the VIX has nearly reached its highest. This tells us of extremene bearish sentiments existing in the markets currently.

http://chartink.com/pointfigure/INDIAVIX.html

On the Point and Figure charts one can clearly see the VIX continuously making higher tops and higher bottoms since April 2013. Let us wait and see what markets are likely to do after this settlement which expires tomorrow.