Wednesday, December 8, 2010

The Monthly DOJI

Jagjit asks:
I want to ask that if the doji formation in the monthly sensex chart and closing of the next candle below the low of doji a confirmation of the downtrend to be started for some more months to come. What are the possible levels to watch out for?

My Notes:
This is thought provoking question.
I track the Nifty so I will discuss the DOJI made on the monthly chart. (Same as the Sensex). Here is the chart:

A DOJI is a sign of uncertaintly. When it comes at the top of a trend, the message is that the rally is coming in question. A correction may come in. The DOJI is confirmed when the next bar goes lower than the low of the DOJI. A DOJI made in October was confirmed on the downside when prices moved, then closed below its low. But, what happens if the trend suddenly changes? This did happen to the DOJI made in April 2010 (marked on the chart). A stoploss is therefore placed above the high of the DOJI bar.

In the current context, roughly, a close above 6300 will cancel out the bearish implications of the DOJI. Till then, we are in a correction of some kind.


Vivek Rattan said...

One more observation, Sir. Though doji was made in the month of Feb., but if we look at the closing price of the month of Feb.,it was higher than the previous month close. Not a sign of weakness as such. But in the case of Oct., doji was made and prices close below the last month close which suggests weakness.

Pi said...

Okay, I just want to make this comment to all your readers. I think is the time to go out & buy bank stocks. Bank index was in a big uptrend from 2009 low & last few months were quite excessive. As sudarshan ji says, investors should only buy on corrections & dips. We have seen quite a meaningful dip in bank stocks now. In technical terms, the index has made a 3 correction pattern(correction has ended or not one can't say right now) & for investors it presents a right opportunity to buy. People who are looking for even lower prices to buy, please understand that its not possible to catch bottoms. Divide the money you'd like to invest in 10 equal parts and invest equally over next month, buying every alternate day.

Such a strong uptrend had only meant that strong hands were continually buying and willing to go through drawdowns to take part in the long term opportunity. The story has not ended just because of a few officials taking bribes etc. Just read this article -

The conclusion from that article is that we might see a transformation as unique as we saw in telecom in mid of last decade. Why should large widely spread, govt controlled banks with stable earnings trade at significant discounts to private banks? With time when there is more & more public scrutiny the banks are going to make their operations more & more efficient. Banks like Union bank, BOB, Bank of India are trying to re-invent themselves to run like private banks (not just in name/logo/colors, but also in operations/systems & processes).I have friends in consulting firms working on organisational transformation projects with these banks & they say that things are going to look vastly different in a few years due to these banks making transformational changes in their structure & systems.

Also the major beneficiary of Aadhar & penetration into rural areas would be the PSU banks with their vast reach. Further, even now, most of these banks are reasonably valued.

What we have seen in banking stocks in past 6 months is just the first leg of a major multi year rally. Get in now & ride along & don't worry about these small corrections. These are going to be the multi baggers in the years to come.

Krishna said...

Dear Sir

With due regards, I like to ask one question coming to my mind.

Is knowledge of TECHNICALs is necessary to be successful in this business??

Charts etc have become available to retailers like me after internet connections & online trading became easily available in recent few years.

But stock market is running for last many many years (say 100) & traders still were predicting the direction of the market & some of them created "Wealth" while many others vanished.

So what was the difference between those who created wealth & those vanished forever ?

Was it really "Charting & Technicals" ?

I am in different opinion.

Market is driven by collective emotions i.e. feelings of traders/investors.

What is required is just to use the SENSE ON BROAD BASIS because indicators, charts, fibs, cam, pivots are only graphical representation of emotions & psychology of traders/investors at a certain price level in past.

Technicals do help but vision is to be extended.

Short sighting nullifies all the good effect of technicals.

Since market could not break through past life time high so I view that upside is caped & down side is opened alot over a period of time.

I am not able to tell about the "Time" mkt will take to reach at a certain level.

But probably it can not run up or fall down in a straight vertical line (though it is king & can do this also).

So I try to discuss here about the recent correction on the grounds of my limited technical knowledge through monthly chart.

If you carefully look at last 04 candles & associated volume then it says that rise (green candle marked with arrow) was with good volumes but then we have a DOJI (with even bigger volumes) showing the fatigue & then selling (red candle with even higher volume).

Since all this is happening on Monthly Charts so this technically suggests me that mkt can see a bigger correction than we as of now can think.

I shall again become bullish if mkt breaks through previous highs (6357.10 perhaps) & also STRICTALLY SUSTAINS above that.

Till then 'I feel" that prices can slowly slowly move downwards.

I am a very small trader & keep loosing money in stk mkt through my short sighted unwise egoist blind trades after the brain wash done by rumors & too much information.

I request you to kindly tell me if my perception of reading technical charts is right or not?

what else I should do to further refine it?

With best regards