CHART WATCH
SEE THE PICTURE AND TELL THE STORY
EXERCISE- 4
Charts are Graphical representation of price movement of anything over a period of time. The trend depicted by these charts is governed by the forces of demand and supply. ‘History Repeats’ is a dictum that is operative in the markets also. Markets include all kinds, such as Stock, Commodity, Crude, Metals, and Foreign exchange etc.
I have started using names for the patterns in the charts. Watch them with attention.
* To enlarge the chart Double click by keeping the cursor above the chart.
Market Lesson 2 : Sell on the “Break Down”
What is a Break Down?
A price movement going down below an identified previous level of support. This is usually followed by heavy volume and increased volatility. A support level is a price level where the price tends to find support as it is going down. This means the price is more likely to "bounce" off this level rather than break through it. However, once the price has passed this level, it is likely to continue dropping until it finds another support level. A support break signals that “bear” won the battle.
A breakdown is the bearish counterpart of a breakout.
About the charts: (Dated 16.11.2010)
1. NIFTY Chart – Index is nearing the support line.
2. BHARTI AIRTEL – already given a Break Down Move – Is it going to sustain down move?
Telecommunication Stock
3. PANORAMIC UNIVERSAL – Given a Break Down move at Rs.42 and has moved steeply down.
Originally IT Stock now diversifying in to Hospitality (Hotels)
4. IVRCL IFRA – Has shown a clear Break Down. Likely to go down steeply.
Infrastructure Stock
Break Down Types :
Let me classify the Break Downs into two categories based on the duration. (Duration refers to the time taken by the stock/commodity/Metal/crude etc to start a clear upward move after reaching the bottom.)
Break downs clearly expresses the loss of investors’ favor for the time being. How long it will take to return to investors’ favor is a difficult question to answer. To understand it, we should try to analyze the cause responsible for the breakdown.
Short term Break Down:
If the factors are “seasonal” or include “normal market forces” then the downward journey will be of short duration.
Long Term Break Down:
But if the downward move is due to bad performance of the company as well as the industry as a whole then it may take several years for recovery.
Hence it is prudent to sell the stock whenever you observe a clear Break Down signal.
** NOTE:
To be a successful market operator the first formula you should know is “Buying on Break Out and Selling on Break Down”. All high net worth large scale operators know this and will follow this rule. So as a small investor you should be able to outsmart those big players and be ahead of them in buying and selling. Will it be possible?
The answer is “YES”. It requires a lot of fine-tuning of all technical tools required to foresee the market turnarounds well in advance. “Early bird catches the prey” and the “Early investor makes more money”.
FAQ:
2. Does it require lot of money to invest in Stock Market?
Answer:
No. Even few hundred rupees are enough. Timing is more important. MRF and McDowell were quoting less than ten Rupees during late seventies. Hero Honda was available for less than ten Rupees during late eighties, Jaiprakash industries (now JP Associates) and Garden Silk Mills were available for less than ten rupees during late nineties.
Hence you should be on the lookout for high value stocks available at throwaway prices to invest.
What are the tools required and how to fine tune them? Who are all the fellow players in the arena we have to encounter.
We will discuss in the near future.
Dr.Felisleo
18.11.2010
