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Sunday, 27 September 2020

May We Live In Interesting Times

The markets currently are at a dicey juncture.  After the phenomenal rally in the past few months from the lows of 7500, there has been a phenomenal rally in the nifty and broader markets. And this has happened in the backdrop of investor disbelief.  Most market participants have wondered why markets are going up and have always been sceptical.  

We ourselves also have been sceptical about the rally but while a lot of investors have been sitting on the sidelines and worrying about correction, we have tried to focus on individual companies and sectors where we see strong business tailwinds and which are reflected in strong chart formations.  Whenever we see clear cut trade setups,  we apply our techno funda approach to uncover potential trade setups for the short to medium term.  

Our focus has been to identify fundamentally good companies with strong business tailwinds and good charts and try to recommend them.  The idea of HITPICKS is to provide recommendations in good companies where breakouts have happened or are imminent.  The idea is to recommend stocks where we feel the waiting period for up moves is reduced. This requires us to recommend strong breakouts or imminent breakouts.

As with all investment approaches, our approach is also not infallible. As seen in the past we also have had our share of stop losses being triggered. But we believe in the concept that it doesn’t matter how many times you are right or wrong. (The idea is to be wrong as infrequently as possible). But its important how much money we make when we are right and how little we lose when we are wrong. Hence our adherence to stop losses despite the selected companies being good companies with decent business prospects. 

Coming to the current levels of markets and the patterns seen in the past few days, we have had a big bar reversal on 31st August which marked a short term top for the markets. This was followed by a head and shoulders breakdown in the nifty. The target for this pattern was 10600. But the first port of call was the 200 day exponential moving average at around 10800 levels. As we saw today on 25th September, that level provided a strong support and we saw a strong market bounce from the important support level. Next few days should be crucial to determine the market direction. If markets take out the recent swing high of 11794, we could see another bout of strong upmove will a lot of broad market participation. If the market hesitates after a brief rally and starts falling, then the head and shoulders pattern of 10600 would come soon and our guess is the fall would not stop at the expected level. It could extend much lower, though we would take a call when we get there. Till then we would be on the lookout for reasonably high probability tradeable opportunities and recommend it if we see a good risk-reward potential.

Wishing you all the best in your investment/trading journey.  May we prosper together.

From the Desk of Dr Hitesh Patel

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