In technical analysis, the 200-WMA (Weekly Moving Average) is one of the most important indicators that a trader uses to help identify long-term changes in direction of a stock/index. The 200-WMA is supposed to be the dividing line between a Bear and a Bull market. However, there are always a few doubting Thomases who would not believe in such theories. The following observations will prove that the 200-WMA is indeed a very reliable technical indicator.
In January 2012, we came out with a technical report titled ‘Hope floats around 200-WMA’ in which we conducted a study of CNX 500 stocks and the Nifty Index with respect to their behavior around 200-WMA. We recommended three trading ideas which delivered ~20% returns.
Performance of stocks recommended:
|High after recommendation (Rs)||Returns %|
In the past couple of weeks, the Nifty has shown resilience to fresh bad news. It has managed to notch back-to-back weekly gains despite downbeat GDP data, S&P’s warning, weak IIP numbers, elevated inflation, policy inaction and euro area debt crisis. The Nifty has been trading in a narrow band of 5,000 and 5,150. A breakout from this range would provide clear signals in either direction. The Nifty has been holding above the 200-WMA and a close above 5,160 should confirm long-term uptrend.
In this note, we have conducted a study of Nifty stocks with respect to their behavior around 200-WMA and recommended 2 trading ideas.
|Stock name||Recommendation||CMP (Rs)||Target (Rs)||Expected Returns %|
Infosys - BUY
- Infosys has cemented its position above the 200-WMA for the five consecutive weeks, which provides a base for a strong buying momentum.
- The daily chart of Infosys shows prices breaking out after consolidating for five weeks, taking a shape of a ‘Rounding Bottom’ which is a bullish pattern.
- Also, the stock has closed above its 50-DMA for the first time since April 2012.
- On the oscillator front, RSI is suggesting more upside from the current levels. Based on above technical events, we recommend a buy at current levels for a target of Rs2,700 with stop loss at Rs2,380.
Siemens - BUY
- Siemens is a classic example of trend reversal. The stock fell below the crucial support of 200-WMA in September 2008. The same level has acted as a support base from where the stock has headed higher. Last week, Siemens pulled back from its 200-WMA and has now turned into a compelling buy at current levels.
- After forming an interim top at Rs. 948, the stock has undergone decent price wise correction to touch a low of Rs630. However, it has honored its 200-WMA and pulled back ~10% from the critical moving average last week. Applying moving average analysis, a strong uptrend is possible. Buy for a target of Rs820 with stop loss of Rs640.
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