3 Trading Opportunities as the Market Recovers from Longest Losing Streak in 4-Years

Feb 21, 2019

Apurva Sheth, Editor,Profit Hunter Pro

The Indian stock market finally heaved a sigh of relief after a long time. The benchmark Nifty 50 index slipped for 8 sessions in a row until Tuesday. This was its longest consecutive losing streak since March 2015. Back then the index jumped 6% in the next 8 trading sessions.

The Nifty bounced back from oversold levels yesterday with gains of more than 100 points. At Profit Hunter Pro, our readers were ready to take advantage of this bounce back with our insights and recommendations which went out throughout the week.

Here's an edited excerpt which went out to our readers on Monday...

I have been writing about an asset class since October which could do well in current environment - GOLD. With geopolitical tensions on the rise and general elections round the corner gold could be a perfect hedge for the year 2019.

The long-term price action of gold suggests it's already in an uptrend. And now the short-term price action also suggests more upside is in the docks. Gold is forming a bullish flag pattern on the daily charts.

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Here's what I shared about the flag pattern a couple of weeks ago while we were sharpening our 'trader toolbox'.

    A Bullish Flag is a short-term continuation pattern that marks a small consolidation before the previous upmove resumes.

    This pattern looks exactly like a rectangular flag hoisted from a pole. The simple shape makes it easier to identify and remember.

    Bullish Flag Pattern

    Bullish Flag Pattern

    A flag pattern will normally be seen in a well-established uptrend. You know how to identify uptrends...higher tops and higher bottoms, right? In this uptrend, the price suddenly makes a sharp upmove with rising volumes. This up move is almost vertical. The price advances in a very short span of time, and the magnitude of the move is large compared to the recent price movement.

    This sharp advance is followed by sideways movement as the price consolidates in a narrow range for considerable time. This happens because those who have entered at lower levels before the sharp advance book profits seeing the higher levels. However, this selling is quickly absorbed as fresh buyers enter as soon as they spot marginal weakness. This keeps the price afloat in a range. The consolidation that occurs can be perfectly horizontal in shape (as shown in the above illustration) or it can slope slightly downwards.

    When the price is consolidating in a range, the volumes drop or flatten out compared to what they were during the previous advance. This happens because some old buyers tend to hold onto the stock instead of cashing out in expectation of a further upmove. Thus, the number of shares offered reduces, leading to a drop in volumes.

    As the number of stocks offered drops, buyers become impatient and eventually raise their bids to get hold of the stock. Higher bids lure the sellers. They give in to the temptation of higher bids and sell their stock. This pushes the price out of the consolidation range and moves price in to an uptrend again. Prices breakout of the range with higher volumes. The breakout from the range confirms the pattern and indicates resumption of the uptrend. Traders can look for a breakout from this pattern to go long on the stock.

    One can also set targets and stoploss with the help of this pattern. Here's how you can do it...

    chart

    Once the stock breaks out from the flag consolidation it normally travels the same distance it moved up just before the consolidation.

    So, let's say the stock moved up by 10 rupees from a level of 80 to 90 then chances are high that it will move up by an equivalent distance after the breakout.

    So, the target in this case could be 100 once the stock breaks out above the breakout point of 90. Traders can set 100 as target and the low of flag consolidation as the stoploss.

    Gold moved from a short-term low of 32,000 on 25th January 2019 to a high of 33,750 on 4th February 2019. The sharp move in these six sessions was the pole of the flag pattern. Gold entered in to a flag consolidation after this and broke out of the same last Friday.

    Gold Racing Towards All-Time Highs

     

    Measuring implications from the pattern suggests gold could see an upside of about 1,750 rupees (33,750 - 32,000) from the breakout point of 33,100.

    This means gold could be headed to a level of 34,850 (33,100+1,750). This is more than all-time high of gold on closing basis which was 34,439.

    So, gold is one asset which could soon be trading at all-time highs in this falling market. I am sure you are aware of the 5 most popular ways to benefit from gold's advance.

    Find out what suits you the most and profit from this rally.

Now gold has moved up smartly during the week. It almost touched the 34,000 mark yesterday and is well placed to move further up from here.

It may be too late for someone who wants to benefit from this short-term upside in gold since it has moved up already. However, I have good news for you.

There are two stocks which I recommended during the week with a potential upside of 12-13% in a few days to weeks. They have moved up but still offer significant profit potential to anyone who buys them now.

Find out how you can access them here.

Apurva Sheth
Apurva Sheth (Research Analyst)
Editor, Profit Hunter Pro

PS: Gold is just one opportunity Apurva has identified through his technical analysis - for 2 other fantastic short term trading opportunities from him click here.

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