Sun Pharma: Does Price Capture Everything?

Have you been surprised by how newsflow gels with price action? It should not if you understand the basic premise of technical analysis that the price action captures everything. Hence, the technical analyst can take investment decision by studying the historical price action. The recent examples from the pharma space reaffirms this basic premise. Price movement is driven by supply-demand. Newsflow, more often than not, tends to coincide with the price reaching key support / resistance levels. To word it differently, pro-money typically use news flow to load-up or sell their holdings.

Do not ask me if pro-money are privy to this newsflow ahead of others? The answer is very apparent and am unwilling to elaborate any further ! Here is a couple of examples from the pharma space where newsflow and price action has been interesting.

In a recent post on Lupin, it was highlighted how bad news (poor earnings in Lupin’s case) drove price lower to a key support in May 2015. The stock gained almost 25% from the lows established post the news-driven low. Let’s now switch to Sun Pharma. The stock has moved up steadily and as always, price rebounded from support. The recent rally has pushed the stock to a key resistance, highlighted in the daily chart below.
And, right at the time when Sun reached the resistance, the company issues a revenue / profit warning yesterday, citing issues relating to the merger of Ranbaxy Laboratories. The Sun Pharma stock has opened with a huge gap down today. But how far will it go down? That is for you to sort out. The only hint I can give is that price will fall to its next support. I would appreciate a few inputs from your regarding where this next support can come by.

The purpose behind the post is to drive home the point that the price does capture all developments pertaining to the stock / instrument concerned. So, believe your charts and trust your analysis.

Note: I do not own shares in Sun Pharma.


Nifty: Fall Yesterday Was Not Surprising

It has been a while since I have posted anything in this site. A few have raised questions if I have stopped writing. Just to allay such fears , I decided to put out this post. On a more serious note, the objective behind this post was to highlight how the fall yesterday should not have been a surprise if one was clued on to the key pointers and price action.

OK, I can hear a few shouts that this post is an exercise in post-mortem and would have served a better purpose had I posted it a day earlier. Point taken! I am still going ahead with it as I feel someone can pick up a trick or two and use it when a similar set of events pan out later.

Let’s start the port-mortem! Before that, let’s ask ourselves if the fall was triggered by the Greece-related developments ?  Or, was the Greece-news just an excuse to engineer the reversal which has been a work-in-progress for a while? Sounds confusing? It’s not, just think.

Have a look at the daily chart of the Nifty Futures.


What a surprise that price turned right at the place where sellers were active earlier. Think about it in order flow terms. Am sure Market Profile (the in-thing now in social media) would have thrown up similar cues, but the terminology they use would be different. After a small base, price just broke down.

What causes price to make such one-sided movement? As I said, think in terms of order flow and Am not giving the answer. Please share your thoughts in the comments section below.

Off to the 15-minute chart of Nifty Futures.

NF 15

Rather than putting out the details, I decided to keep it as a quiz. Let me know what the arrows in the above chart point to, or indicate. Can you make out what price is doing as it heads closer to the major decision point in the daily chart?

If you have answer to these questions, then you are all set to capitalise on the next move. The same or may be similar patterns or concepts play out time and again. We just need the patience and the skill to decipher the clues left behind by the pro-money. After all, those huge volumes of pro-money cannot be concealed beyond a point. They have to eventually manifest in price / volume action. And, trust me, the quick reversal with momentum is discernible and you can anticipate it well in advance.


Nifty Rally: Relief After 200-DMA Breach !!

How ironical? Nifty provides a bit of breathing space to the bullish camp right after the breach of the 200-DMA. Leading financial daily, websites such as www.moneycontrol.com and popular TV channels were buzzing with headlines that Nifty breached the all important 200-DMA (day moving average) yesterday. The prior low at 8,269 was also taken out, bearishness all around.

The setting was perfect to stage a turnaround. It is not surprising that Nifty staged a nice recovery today as buying was easy for biggies with almost everyone willing to sell.

I have mentioned this on numerous occasions in twitter too. Ponder over this: How will price fall when everyone is bearish or vice-versa.  Price has to take a breather and some guppy food (read as gullible traders/investors) must be trapped to trigger next leg of the trend. Recall what happened when Nifty bounced from 8,269. Everyone talked of new highs and now everyone is talking of fancy downside targets.

Best thing is to stick with the trend and coast along. Let’s take a look at the hourly chart of Nifty Futures. This recovery in the Nifty was always round the corner and the setting today was ideal to orchestrate this. With everyone leaning to the bearish side, slightest hint of recovery will force late-and-weak bears to run for cover and this short-covering process will continue the longer the Nifty rules firm or stops falling by consolidating. Either way, a portion of the bears will bail out, fueling rally.

NF hrly new

I have been waiting for this recovery since yesterday morning. The reason is the way the Nifty Futures has fallen from 8,529. Have a look at the above chart. The recent leg of the fall has lacked conviction and to my eye, it resembles the rally that happened from 8,395 to 8,874. So, you have guessed it right, I expect a swift recovery.

Now, am I turning bullish? Definitely not, at least not yet. For me, the Nifty must clear at least 8530 in Nifty Futures (8,505 in spot) before turning bullish. But, there is money to be made in the interim, by going long. Recognize which time frame you are operating and try to participate in the meat of the move in that time frame. Lot of traders get chopped owing to confusion arising out of multiple time frame analysis.

I expect the recovery to continue up to 8,500 as long as the low at 8185 is not breached.The target based on Nifty futures Point & Figure chart works out to 8,410.

If you ask me what happens if 8505 is breached, I must confess that I don’t know. We will have to take one step at a time. Within an overall bearish context there is room to go long and make money. But, I do not know if the index has bottomed out or if we can make new highs. If Nifty has bottomed out and headed to new highs, we have sufficient time and upside room. So there is little need to second-guess. Until there is evidence to that effect, I will work on the premise that the current recovery is a pull back in a downtrend.

Note: I am long Nifty this morning. I also own portfolio of shares from the Nifty universe.


Nifty: At 200-DMA, So What?

Hope  you read my earlier post on the Nifty. The index is now on the verge of breaking the low at 8,269. If there is a decisive breach of this level, then it would confirm a bearish sequence of lower highs and lower lows in the daily as well as the weekly time frame. In the meanwhile, have a look at the daily chart of the Nifty featured below.


The Nifty conveniently chose to ignore the fibonacci retracement calculated off the prior rally from 8,269 to 8,845. Now, the next level of significance that every other person is talking about is the 200-day moving average (DMA). What is the big deal about price getting closer to this moving average?

It assumes significance because the technical analysis literature talks about this average as being a trend-decider. Long term trend is up as long as price rules above the 200-DMA is the consensus view.

So, it would make a lot more sense if one were to use this 200-DMA as a line in the sand rather than looking at it as a potential support. The price obviously does not know that there is a 200-DMA which has to be respected to help the cause of the beleaguered bulls. And, if one were to wait for a breach of the 200-DMA before concluding trend reversal then it might be probably too late in the day.

What I personally prefer is to use swing highs and swing lows to determine trend. Price is in an uptrend as long as it makes higher lows and when a prior low gets breached it is a sign of a potential trend reversal. As always, have a sense of artistic freedom while determining which swing low or high is crucial. A one-or-two bar pull-back in an uptrend may not be as significant as a pull back which has consumed more time and price. So, be aware of the context.

In the Nifty’s case, it has breached prior swing low at 8,471 in the daily as well as the weekly time frames. The subsequent pull back was arrested right at the resistance (detailed in the previous post). These clues suggest that Nifty is likely to be in a subdued phase for a while until there is a clear breakout past prior swing high.

As of now, the recent high at 8,845 is our reference point to decide if the downtrend is over. I can already hear a lot of irate voice shouting that with Nifty at 8,305, having a reference point at 8,845 is meaningless. Point taken. But, that is reference point as of now, whether one likes it or not. Please be reminded that the price will leave behind a much reasonable and realistic level if it heads lower. It it just that as of now, we have to live with 8,845.

Or, the least one can do before entertaining long positions is to wait for a breakout above 8,505 which is a relatively minor swing high formed last week. Once that high is breached, we can then wait for a subsequent correction to buy the Nifty, not for new highs, but a more modest target.

The point am trying to drive home is to be objective with your analysis and not to be swayed by intra-day or lower time frame moves. Have a perspective of where we are in the higher time frames and let that be your guiding force behind the decision making process. There is way too much noise as you drill down to the lower time frame that it is very easy to lose perspective and get chopped.

My expectation is that the Nifty would slide to the prior swing low at 7,961. I will hold this view until we move above 8,845. This does not mean that one should not look at long trades. There will always be instances where there is sufficient room to go long and make money even while the overall trend remains bearish. So, realise the context and do not aim for the moon IF there is a bounce sometime next week for whatever reason. Be realistic with your upside expectations and manage your positions judiciously.

Just as an aside, while the Nifty is yet to break the prior low at 8,269, the Nifty Futures has breached the corresponding low at 8,329 on Friday. Have your levels marked and wait for a significant resistance to be broken before considering fancy upside targets.

Note: I do not have any trading position in the Nifty as of today. I however own a portfolio of shares which includes Nifty constituents. I might consider trading positions in the Nifty next week.