Everyone wanted a dip but when it comes nobody is interested to buy it
One of the additions to my technical analysis has been a bit of sentiment analysis. Of late i keep taking an unofficial poll from a group of traders, investors, money managers who i keep interacting regularly.
At 5600 Nifty – When would you buy ?
The unanimous answer was 5200:)
At 5200 Nifty – When would you buy ?
The majority shifted to 5000 or after budget or big stuff like UP elections effect etc.
What i find is people cannot structure a process. So when i had posted this chart Sensex Retest suggesting a buy zone at 17000-17500 slowly i did see an intent to buy the dip. But two days later people turned fearful.
The index did come to the zone coz of a knee-jerk reaction to the UP Elections. Clearly mentioned in the post that did UP elections have any major relevance on trend – Post here
So if you bought the dip at 5200-5150 one may look to book partial profits as we can see a positive reaction on the RBI crr cut. Why am i booking profits ? The reason is simple if a get a knee jerk reaction on Budget will have some cash. If there is no reaction and markets continue to rally then will ride the rest of the position
Sensex Technical View:
-> One can clearly see a re-test with a nice doji being formed.
-> The lows were very close to the 50/200 dema.
-> The bounce back will now get some resistance at 17700-18000 where one can book partial profits on specific stocks.
Now let us go back to the time when we turned bullish. Around start of January and also we continued to hang on to the longs and built more all through the way from 4600 to 5600. In between we did get stuck at 5180 short which got taken out at 5230 and we changed track.
So its clear we turned very bullish all through 4600-5200. Also recently have been buying the dips.
Why am i saying the above thing is because now i would expect a lot of Technical Analyst as well as Fundamental Analysts and even CNBC guys talking about it loudly. So would not want readers to get influenced and enter a bit late as this is generally a late signal. Very recently read this article http://www.moneycontrol.com/news/fii-view/market-approaching-golden-crossmarch-ridham-desai_670423.html .
So lets look into that signal.
The golden cross is a chart pattern created when a shorter term moving average was below a longer term moving average, but it crosses above that moving average. This is typically seen as a bullish signal.
The golden cross is mostly used with longer term moving averages. It's an especially strong signal when the 50 day moving average crosses above the 200 day moving average.
Although this is a confirmatory signal of a trend i have found it to be generally a late. But yes this happens very few times in many years.
- > The last Death Cross ( opposite of Golden Cross ) happened at in March 2011. Post that we actually saw a sharp rally in short term but it continued to lead into a fall. We turned cautious on the break of 19900/19000 in february.
-> Before this we had seen a Golden Cross only after the 2009 Elections. Though we did see a dip after that but we led to previous highs over the next 1 year.
-> Similar death cross and Golden Cross have been shown on the charts for the last 8-10 years. One can clearly see the effect of the trend post that over the long term.
-> Currently the index is now well-placed for a Golden Cross Over if we rise further over the next few weeks.
-> This does not imply a buy signal whenever it happens but one would look at every dips as a buying opportunity post this happens with a next 1-2 years view at least.
The signal is late but it adds to the conviction in the trend. Although our signals came a bit early at 4600-5000 levels based on our proprietary studies on moving averages. The proprietary study on moving averages is covered in our Technical Analysis Training Program.
Strategy : Its pretty simple buy the dips. Book partially on rise to increase cash. Deploy cash again on any knee jerk reactions. Ride the trend
Disclosure: As being mentioned in all our previous posts had mentioned we are almost invested in very low on cash. As of now we are totally invested and will look to get to a bit of cash in next few sessions just as a part of strategy. So with such high equity holdings we can tend to get more bullish :).