06 November 2009

Nifty : What after the oversold bounce

After the carnage on Tuesday, Wednesday saw Nifty regain all the losses and Thursday was a day of dramatic turnaround led by short covering. Nifty was having good support at 4600 and that triggered shorts to cover. We all know that markets never move in a straight line and the zig-zag price movements kill traders on both side. So when money making was getting easy by shorting, we get these bounces which are extremely hard to catch for anyone who plans to get long.

In the morning I heard "experts" talking about Suzlon being the weakest Nifty stock and chances are there for it to totally breakdown and reach to 40 within few days, it closed on 55 the previous day (a fall of over 25%). I immediately calculated how much money I can make by shorting a single lot of Suzlon. As my broker never allow me to exceed my margin I kept ruing about how many such opportunities I am missing every day! Guess what Suzlon was 3% higher when Nifty was almost 100 points down for the day and closed 13% higher and I am sure there are more such days to come, it will start falling again only when all the shorts are cleared off the system! The point that I am making here is that we can rarely catch the counter-trend moves, so the best tactic a trader should approach is to get out of markets way.

Coming to Nifty, what we have seen in last two days and maybe see tomorrow as well is one of these bounces from oversold levels, which is having support of good news (scaring the shorts even more). If we get some gap up opening in the vicinity of 4800, we can see Nifty rally much higher, cleaning whatever shorts that are left or might have been created today. 4860 should be a good initial target to keep an eye on and 4925 if that breaks.

But the higher levels we reach, steeper the fall can be from there. Because in my opinion the uptrend has been broken and we have to see levels lower than 4540 to justify the new negative momentum high that has been made. As per chart and new Elliot count we have ended the uptrend at 5182 and made the wave A low at 4539. Wave B should take us to a minimum of 4860 and then Wave C should take us lower from there. The expected amount of fall is a very large range (400-1000) points. So what we can for sure expect is a test of 4500! Would we test 3900 lows.. well I don't know the answer, but hope the chart would foretell...


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