Date: 16 th September 2013 Technical Trading Idea Research Contributor: Brijesh Bhatia (Technical Analyst Senior Manager) 022-40350185 brijesh.bhatia@lmcpl.com Amit Pathania (Jr. Technical Analyst) 022-40350184 amit.pathania@lmcpl.com
Soybean prices on National Commodity & Derivatives Exchange Ltd (NCDEX) have been trading in southward direction after a rise in the first quarter of 2014. The prices showed tremendous upmove of 25% and retraced by ~35% since the start of May 2014. Prices made a low of 3,107 in active October Futures contract and trading around sub 3,200 levels. This was the history, what s next? To predict the future, we have analyzed the daily, weekly and monthly charts using various technical patterns and indicators. Daily Chart: The daily chart shows a bullish reversal formation. We are witnessing bullish AB=CD harmonic pattern. AB=CD is the harmonic pattern with two equals legs and a retracement. In the current scenario, the AB is the leg from 4,770 to 3,775 levels, and the CD is the equality calculated from the retracement point C; i.e, 38.20% at 4,099 to 3,107 (the low of the rally). The CD is calculated at the 261.80% Fibonacci projection of BC. Further, to strengthen the bullish move, hammer a bullish reversal candlestick pattern - was formed at the low and we saw a sharp bullish moves preceding the reversal formation. Analyzing the leading indicator Relative Strength Index (RSI), it is moving out of the oversold zone (30). It made a low around 22 levels and has shown a positive divergence supporting the bullish reversal harmonic pattern.
Weekly Chart: With the bullish reversal patterns on daily chart, the weekly chart too has a bullish reversal pattern. The bullish anti-butterfly harmonic reversal pattern is visible on charts. The anti-butterfly has started from the last week of July 2013. The co-ordinates of the patterns are: The first leg is the XA which is the rise from 2,838 to 4,020. The time taken to complete the leg is 15 weeks. The second leg is the AB which has retraced by approx 50% of XA at 3,483.50 and the time taken is 11 weeks. The third leg BC has completed at 4,855 in the last week of April 2014. It is the 261.80% fibonacci projection of AB. The time taken to complete the leg is 15 weeks. The last and final leg CD is the move from the high of 2014 at 4,855 to the low of 2014 at 3,107, downside of 35% in the span of 18 weeks. The pattern is said to be completed because the co-ordinates of 78.60% fibonacci retracement of XA and 127.20% fibonacci projection of BC coincides at the same level which is called the Potential Reversal Zone (PRZ). The time taken to complete the leg is 18 weeks. The important point to look at the formation is the time-frame. The time it has taken to complete the triangle XAB is 26 weeks while the triangle BCD completed in 33 weeks which is 1.2720 times of weeks taken by XAB.The 127.20 is the fibonacci number which plays an important role. The reversal with the time analysis enhance the pattern. At the reversal level, the bullish doji a candlestick reversal pattern is visible strenghting the harmonic reversal. As per the rule of doji, it is confirmed when the high of the candle is crossed and in the current chart, the high is 3,239. The move above the high would confirm the doji reversal initiating a buy signal.
Monthly Chart: On the monthly chart, prices are trading near 88.60% fibonacci retracement of 2,838 to 4,855 at 3,107. Looking at the RSI, the 6 years horizontal trendline at 43 is visible. It is trading around 43.58 in a band of 40-60. Considering the harmonic patterns, the RSI can bounce back. Conclusion: Analyzing the different time-frame, we witnessed a various bullish reversal patterns on daily and weekly charts around 3,107 supported by time analysis. Simultaneously, the support is visible at the same level on the monthly chart. The indicators on daily chart has turned positive from oversold level while on monthly chart, it is trading at support supporting the reversal stance. Considering the price difference between October Futures and November Futures, it is trading at a discount of nearly 150 points which makes a good entry in the November Futures contract. We suggest buying NCDEX Soybean November Futures on dips to 3,050 for the target of 3,500/3,800 with the stop loss of 2,800 (closing basis) with the time-frame of 1 year.
NOTES DISCLAIMER: This document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While we are not soliciting any action based upon this information, all care has been taken to ensure that the facts are accurate and opinions given fair and reasonable. Neither LATIN MANHARLAL COMMODITIES PVT LTD, nor any of its employees shall be responsible for the contents. Our directors or employees, may from time to time, have positions in, or options on, and buy and sell of stocks referred to herein.