10 March 2011

Nifty : Confused ?

Just a small interesting observation which I wanted to point out.

The above chart shows Nifty confirming two contradictory signals. First is the "Death Cross" which classically is a bearish sign and also of a long term trend reversal. The second is the Ichimoku Cloud "Weak Buy" signal. This could be read more as a signal of downtrend ending and possibility of reversal, as the prices have not yet crossed the cloud resistance.

Moving averages studies state that, in a trend, short term averages often meet long term averages (by consolidating or correcting) to gather energy for the next strong move. Is this "meeting" of 50DMA and 200DMA another such encounter?

Also now that the short term average (blue) of Ichimoku has gone above long term average (red), a decent bout of correction will again send short term below long term which would signal a "Strong Sell" for Nifty.

Which of these is going to happen? Time will tell that. But after a decent consolidation, (may be it will take some more time) prices will break out in some direction. An upward break would certainly suggest this downtrend is over and 6350 high will be taken out in near future. A downward break could be targeting 2009 election gap fill.


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