27 November 2010

Nifty : Cloudburst ?

After consistent selling for 3 weeks, Nifty has lost 600 points. Though 600 points is not a big deal the major impact has been on sentiments. All the TV analysts who were predicting 6500-7000 in a matter of weeks are quickly doing a U turn and talking about this being another good opportunity to buy! Well definitely we can get a bounce, maybe a sharp one as I feel there has been a lot of pessimism very quickly and kind of fear as well. Also data suggests there has been a lot of short addition and market do not like crowd one side.

The above chart shows Nifty along with MACD and Oscillator. We have overlays of 50dma, 200dma and Ichimoku clouds. As we see Nifty has broken 50dma, week before last itself and the cloud support on friday last week. The MACD shows no sign of divergence, rather its gaining momentum and the oscillator shows very oversold levels.

Now what we can infer from all these is that after breaking 50dma a very natural attraction towards 200dma can happen. We would have expected Nifty to give a fight at the clouds but looks like the clouds are far too weak to stop the downside momentum. The oscillator though a very bad indicator in a trending market, points to some kind of technical rally.

What I feel is that with some days of no bad news day we can see that technical rally materialize. It should be contained around the 5950 area. The pessimism will certainly erode and so should the shorts. But as the overhang of scam, Euro crisis and all other "news" again make headlines, market will rapidly fall to test the 200dma around 5500.

The other scenario can be no respite from all these and a selling party for next 10 days as well, where we hit 200dma and then bounce hard (maybe) to current levels. Whatever be the case next week should be eventful and volatile. Making money would certainly be never easy as it had been.


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