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The Nifty, on Friday, broke down below the rectangle within which it has been moving since the past several days (between 4800-5500). On Friday, it broke through the rectangle, went all the way down below 4700 and then recovered to end the day at 4771. This recovery, albeit small, may be like a light at the end of the tunnel. Under normal circumstances, a drop below 4800 would have led to massive selling and a buying would not have come so soon. The fact that it has means that there are buyers who are willing to pick up stocks at this level and this may push the markets up. But the crucial day to watch is Monday. Another close below 4800 may indicate further weakness and a confirmation that this rectangle, indeed, has been broken. The target for this breakdown may well be 4100.
The recovery may have happened because the prices met the blue trendline near 4670. This is the trendline which, though not visible on the chart, has been drawn from the lows of the famous May/June 2006 decline. This line indicates the long term trend of the Nifty. Prices above this line indicate bullishness and below this line indicate bearishness. An actual confirmation of a long term downtrend would come if the Nifty were to go below 4000. Prices breaking this trendline may be only a warning of the trend ahead and nothing more. A little bit of support was bound to come at this level.
Now, we are met with two scenarios. One is that the daily charts are suggesting that a two month old rectangle has been broken and that should push the prices down to 4100. The other scenario is that a trendline which is 21 months old is there at 4670 and that prices should not go below that. These are both contradictory views. But, for the time being we would assume that the longer term pattern will hold as compared to the shorter term pattern. This means that there is a support at 4670 and that may be the low for this downmove. Some analysts differ in their views. They are drawing the trendline a little lower and according to them this support should not come before 4600. But let us wait and see as to what the market considers as a support.
Looking into the future, if we assume scenario number 2 to be correct then we should soon witness a bounce back. If this bounce back does not come and prices go down further then we would look at 4100 as the next target. There may be a minor support near 4448, which is the low of the black Tuesday (22 Jan 2008). Friday’s close was the fourth consecutive close below the 200 day moving average. While that is still conveying weakness, yet this trendline at which we are getting support is 21 months old which roughly works out to about 450 trading days. So, again this line holds more significance than a 200 day moving average does. But a break below this line, or prices respecting this line, should tell us where we actually stand.
Since we remain in a continued downtrend, no stocks discussed for buying.
The Nifty, on Friday, broke down below the rectangle within which it has been moving since the past several days (between 4800-5500). On Friday, it broke through the rectangle, went all the way down below 4700 and then recovered to end the day at 4771. This recovery, albeit small, may be like a light at the end of the tunnel. Under normal circumstances, a drop below 4800 would have led to massive selling and a buying would not have come so soon. The fact that it has means that there are buyers who are willing to pick up stocks at this level and this may push the markets up. But the crucial day to watch is Monday. Another close below 4800 may indicate further weakness and a confirmation that this rectangle, indeed, has been broken. The target for this breakdown may well be 4100.
The recovery may have happened because the prices met the blue trendline near 4670. This is the trendline which, though not visible on the chart, has been drawn from the lows of the famous May/June 2006 decline. This line indicates the long term trend of the Nifty. Prices above this line indicate bullishness and below this line indicate bearishness. An actual confirmation of a long term downtrend would come if the Nifty were to go below 4000. Prices breaking this trendline may be only a warning of the trend ahead and nothing more. A little bit of support was bound to come at this level.Now, we are met with two scenarios. One is that the daily charts are suggesting that a two month old rectangle has been broken and that should push the prices down to 4100. The other scenario is that a trendline which is 21 months old is there at 4670 and that prices should not go below that. These are both contradictory views. But, for the time being we would assume that the longer term pattern will hold as compared to the shorter term pattern. This means that there is a support at 4670 and that may be the low for this downmove. Some analysts differ in their views. They are drawing the trendline a little lower and according to them this support should not come before 4600. But let us wait and see as to what the market considers as a support.
Looking into the future, if we assume scenario number 2 to be correct then we should soon witness a bounce back. If this bounce back does not come and prices go down further then we would look at 4100 as the next target. There may be a minor support near 4448, which is the low of the black Tuesday (22 Jan 2008). Friday’s close was the fourth consecutive close below the 200 day moving average. While that is still conveying weakness, yet this trendline at which we are getting support is 21 months old which roughly works out to about 450 trading days. So, again this line holds more significance than a 200 day moving average does. But a break below this line, or prices respecting this line, should tell us where we actually stand.
Since we remain in a continued downtrend, no stocks discussed for buying.
As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall in the markets, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.
Happy investing!!!
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