28 June 2011

Nifty : How Much More?

As expected, in my 18th June post, when things became far too obvious, that market's only direction is and should be down, it made a killer move. After spending only 3 days below 5300, it bounced back hard. The last 3 trading days has seen roughly 240 Nifty points gain and doesn't by any means looks it can go any lower from here! Atleast the momentum is so high that anyone trying to change its direction would surely be swept away!



Getting away with metaphors and coming back to real world, which is charts in our case is nothing else than picture perfect for bulls. There was numerous divergence created, MACD being the most easily identifiable. Nifty touched 5200 in the "Mauritius Panic" and took tremendous support (generally these panic lows are always retested) and have rallied over 300 points from there. The "big white candle" of Friday not only killed all the shorts, it also killed a lot of negative sentiment. People predicting 4800 should surely hide their faces!

So what should we be expecting now? As pointed in the chart, there are 2 big resistances coming on Nifty's way. 1st the minor 5600, which had been broken only once since the November 2010 highs. Then the major, the downward sloping trendline. In my opinion, looking at the current momentum and F&O expiry, I feel 5600 would be the near term resistance to work with, so I don't expect expiry to be much higher than 5600. The beginning of July should see, Nifty struggling (by no means weak) around the red circle marked in the chart.

If this resistance is taken out, 5900 and 6200 are the levels that can come into the picture, but I would say those will hardly be a stumbling block and we would most probably see strong rally to challenge the November as well as all time highs.

If Nifty falters around the red circle, expect retest of 5200 panic lows. My personal opinion is of the 2nd scenario, where Nifty hits the downward sloping trendline, falls back to 5200 to complete leg E of a descending triangle which is wave 4 and then rally sharply.

I will enjoy this rally, but I will be cautious around 5600-5700 with my longs and should be ready to convert them to shorts, just in case we get too optimistic at 5700.

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