Nifty Fails to Sustain Higher Levels

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Both the Dow Jones and the Nasdaq ended on firm territory on Thursday while European Markets remained a little subdued. The Dow Jones Industrial Average (DJIA) now stands at a very crucial resistance near 12400. If it is able to go past this level, we can expect it to go upto between 12750-12850 levels where again it will find resistance. Beyond these levels, a double bottom would be confirmed which should take it well past 13500. The Relative Strength Index (RSI) has consistently being making lower highs since May last year and a move past 12400 should be able to break that jinx. With improvement in the DJIA, we can expect some sanity to return in our markets too.

Seen above is the daily chart of Nifty. Those of us who can study charts will know that this chart does not present a very rosy picture. On the other hand, it is still looking very gloomy. The Nifty is continuing to make lower highs and lower lows (which suggests that the trend is bearish), it continues to trade well below the 200 day moving average for a couple of weeks now and, in the process, it has broken the 21 month old trendline (brown line) too. On Wednesday, it did try to go past the trendline but was pushed back down, which was expected, and which is why I had recommended to use all rallies to exit long positions. Today also, it looks the same.

But there are a few positives also visible on the chart today. The first being the fact that the Nifty is finding support near our first dashed brown line between 4480 and 4500. And secondly, the RSI is refusing to go below 32 after the January fall despite the Nifty making lower lows each time. As suggested in earlier newsletters, the break of this support near 4480 will push the Nifty to the next dashed brown line near 4100. As of now, that seems to be a likely possibility. A move above 4750 will change the short term trend of the Nifty to up while the intermediate trend will change to up on a move above 5020. We should consider buying only after the short term trend has changed to up. Till that happens, use rallies to exit long positions.

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