Bears Steer Markets After Bear Stearns Crisis

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It was a bad day for the Nifty and a bad day for the market participants. The Nifty opened with a gap down of 200 points and then showed no signs of support except a little bit near 4500 (as was predicted in the previous edition of the newsletter). But soon it slipped below 4500 too to end the day at 4485.

Seen above is the 60 minutes chart of the Nifty. Now, we are well below our ‘strong support’ of 4700 and that has now become a strong resistance. Any rally from these levels will find resistance between 4700-4720. Many analysts are expecting some support near the Jan low of 4448 and we may see a little bounce-back/consolidation at those levels. While there is no reason why the market should find support there but the fact that many are expecting support there means that they would be willing to buy at those levels and a small rally may be expected. There is a short term positive seen on the charts too. A positive divergence (price going down, RSI holding on) between the price and the RSI can be seen.

But the target of 4100 is still on the cards because we are in a short term downtrend, an intermediate downtrend and a possible long term downtrend too (though, that is yet to be confirmed). The short term trend remains down till 4750 on the upside is not breached. Interestingly, the RSI has made a bearish head and shoulder formation on this 60 minutes chart, while it is not very clear on the price chart. This head and shoulder pattern gives the target of -5 for the RSI. But, theoretically, it is not possible for the RSI to go below zero and very difficult to go below 10. But the fact that 30 may be broken after a bearish head and shoulders pattern suggests much more downside for the Nifty.

In light of this situation, it may be wise to use all rallies to exit long positions or to create fresh short positions. No fresh longs advised till the markets show some sign of recovery/consolidation.

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Happy investing!!!

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