Nifty Slips Into Another Range, Gold Shoots Up

The Nifty today opened weak, stayed weak, made a weak attempt to recover after noon but failed and became weaker after the European markets opened weak. So, there is weakness all around. The only thing that’s not weak is Gold, which went up sharply today rising $84, almost 11%.

After breaking down from the double top pattern formed on the 30 minutes charts a few days ago, the Nifty achieved its target at the opening bell of the third day. After achieving the target, the Nifty has now slipped into another range, this time on the 30 minutes charts, as seen above. This range is between 3950 and 4100. While the target on the daily charts remains 3800, it will be only after this range is broken through on the downside. In case the prices break out decisively above this range, that target of 3800 will be cancelled, at least for the time being.

If the prices do break out of this range on the downside, what will be the target on the 30 minutes charts? Well, this range is 150 points wide (4100-3950) and a breakdown will give us an additional 150 points which gives us a target of 3800 (3950-150). So, well, that conforms to our views/target on the daily charts.

That’s fine, but which side is the market likely to break out on? Well, we don’t know. That is what happens in a range. In a range, not only is the market confused/unsure, it confuses us too. Well, we may get some early indication from oscillator indicators when there is a divergence visible, but in this case the Relative Strength Index (RSI) is also not showing any visible divergences. This means, that we shall have to wait till a divergence is visible (which may or may not come) or for the market to come out of the range. So, for now, it is buy above 4100 and sell below 3950 (in the short term). Investors are advised to wait for now and not take any long positions, at least not till the market either achieves 3800 or breaks out on the upside above 4100.

But the international markets may provide some cues. There is some good news from the US. The Fed government has agreed to bail out AIG by giving them a $85 billion loan (that will be repaid by liquidating the company) in exchange for a 80% stake in the company. But there are fresh concerns about Morgan Stanley and Goldman Sachs (the two remaining independent securities firms), the result being that, at the moment, Dow Jones is trading 240 points in the red while the Nasdaq has lost 75 points. Crude remains flat near $97 a barrel. So, all in all, it looks like we are going to have a downside breakout from the range that we are in.

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Nifty at Crucial 4200 Support, Wait for Next Move

As expected the Nifty, after making a confirmed double top pattern on the 30 minutes chart, came down. Though, the target for this double top formation was 4160 but there was support on the daily charts at 4200. The Nifty respected this support, made a low of exactly 4200.15 and then recovered to end the day at 4228 to close 62 points down while the BSE Sensex ended the day with a loss of 323 points. European markets were good on Friday and ended the day with gains between a percent and 2 percent. The American markets, however, were flat. Crude also remained, more or less, flat and maintained support at $100 to end the day at $101.

Seen above is the daily chart of Nifty and, as can be seen, the Nifty has now reached the bottom end of the range at 4200. It is expected to find support at these levels, unless it proves otherwise. In the bottom half of the chart is the Relative Strength Index (RSI) and that shows that it has not yet reached 40 (it is at 42, to be precise). The price at the support level and the RSI still above 40 may indicate that the support maybe respected by the markets. In case they don’t and 4200 is broken decisively on the charts then we may be staring at 3800 in the face.

Since we know that we are at the support level, this may be a good time to buy Nifty futures or Nifty calls. If the markets were to break 4200 then we shall close our long positions with a small loss. For the record, Nifty 4200 calls are trading at Rs.138/- while 4300 calls closed ar Rs.90/- per Nifty. The lot size happens to be 50 Nifties.

Update: The Rupee to Dollar exchange rate has moved up to Rs.46 to a dollar. Last time the dollar touched 46 was on Sep 29, 2006. Asian markets have opened and are trading weak with losses between 2 and 4 percent. Nifty in the Singapore market is 155 points down at 4070. Expect Nifty here too to break 4200. Do not take any long positions.

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Nifty Breaks Down Further, Support Between 4160-4200

Exactly like yesterday, the Nifty opened flat today and almost immediately started losing ground but stabilized soon and then went into a narrow range and kept trading in those levels for most of the day. The bears, finally, took the index below the lows of the day when only an hour of trading was left and the index ended the day about 78 points in the red. The Nifty still remains locked inside a range of 4200-4650. As mentioned in earlier posts, a clear trend would come about if this range is broken on one of the sides. Or when the ADX indicator line starts rising again. This line seems to be stabilizing near 14. Such extremes are rare in the ADX and this clearly shows that a trending should now come about soon enough.

Seen above is the daily chart of Nifty and shows the range within which the index remains locked. The lower end of the range is shown at 4200. However, as explained in yesterday’s post, the index has broken a symmetrical triangle within which it was moving on the downside. The target for this downside breakout is 4160. If we look at the chart above and notice the pivot low which was formed in the end of July, the value happens to be 4159. So, this 4160-4200 range may provide good support to the Nifty. Looking at the Relative Strength Index (RSI), we find that it is now very close to 40. If the RSI does find support near 40, it may mean that all is not lost yet. A breakdown below this range of 4160-4200 should definitely take the RSI below 40 and that would be negative for the markets, and we could be looking at 4000 or 3800 then. Alternatively, if the Nifty were to find support near these levels and the RSI near 40, then the outlook remains, more or less, the same that we would still be in a sideways market but would be saved from the downside, for some time at least.

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Nifty Breaks Down, Support Between 4160-4180

The Nifty opened flat today with a slight positive bias. But soon after 11AM the RBI Credit Policy was announced in which repo rates were increased by 50 basis points to 9% while the CRR was increased by 25 basis points to 9% with an effort to reduce inflation. Though, a rate hike was already discounted into the prices, a 50 basis points hike was not expected. Most participants, with inflation figures stabilizing near 11.8-12%, were expecting a 25 basis points hike. Hence, when the news of the hike came, the markets tanked and then just couldn’t recover throughout the day. Finally, the Sensex ended the day with a loss of 557 points while the Nifty was 142 points in the red.

After yesterday’s dull day, it was clear that the Nifty didn’t have the steam to go up despite its going above the resistance line. Attached above is the 30 minutes chart of the Nifty. We can see clearly that the Nifty today broke through the support marked by the upward sloping trendline numbered 1. As expected, there was additional support near the top of the trend channel between 3800 and 4180. While the Nifty did go below the 4180 support, it finally closed the day at 4190. Now the first support available is between today’s low near 4160 and the top of the trend channel, 4180. If the Nifty does manage to go below 4160, the next support comes in at the trendline marked 2 near 4100. There are other supports too below that near 3900 and 3800 but for tomorrow, I don’t think we need to look beyond the 4100 support.

News from the international front is better too. While the European markets closed flat, the Dow Jones is up almost 200 points. There is good news from crude oil too. It did lose about $5 today but at the moment it is trading with a loss of $3 for the day at $122 per barrel. If the Asian markets too remain good tomorrow morning, we should see the Nifty bounce back from the top of the trend channel. Going by the Fibonacci retracements too, the Nifty has already retraced 50% of the rise in the last week. Now, whether the Nifty sees this 50% retracement as a good retracement or whether it finds the 61.8% retracement a more reliable support is yet to be seen. 61.8% retracement comes in at 4077.

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Lackluster Day For The Nifty

The Nifty opened flat today with a slight positive bias. All through the day, it maintained a very narrow range of about 40 points. It did move up and down about 2-3 times during the day but all through this range of 40-45 points was maintained. A slight dip in the first fifteen minutes found support near the trendline discussed yesterday (and today). The Nifty, as predicted that it might, reversed from that trendline. But then all through the day it remained lackluster, which is worrying.

Attached above is the 30 minutes chart of the Nifty. Just like yesterday’s chart this also comes attached with the same two trendlines and the 14 period Relative Strength Index (RSI). There are some negatives and some positives to this chart. Let us look at the positives first. First of all, support was found at the lower trendline and it moved up from there. Secondly, the upper trendline was broken through, which again is a positive for the National Stock Exchange (NSE) Index. Thirdly, the RSI is finding support at 40 repeatedly as marked by the brown circle.

But, as I said there are some negatives too. Firstly, the trading throughout the day was dull and boring and even after the breakout above the trendline, there was no enthusiasm which suggests that things may not be all that good for Nifty. Secondly, international cues are not too good. European markets closed more than a percent in the red. Dow Jones, at the time of going into print, is trading about 200 points down while crude is attempting a recovery, though it is not very successful at the moment.

All we can say for tomorrow is that the Nifty seems to have slipped into another trading range, though, a much narrower one, between 4280 and 4380. A move above 4380 should be bullish while a move below 4280 should be bearish in the short term. Long term and intermediate term investors should wait for the pullback to complete before taking the plunge.

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No Major Move Till Trust Vote

After two days of gains, we saw another good day today. Politics has become very interesting and Parliament has become a comedy circus with our honourable MPs going back on their words and changing loyalties by the minute. The numbers game and the ‘horse-trading’ continues as the countdown to the trust vote draws closer. At 4pm on Tuesday the members will cast their votes and it will become clear whether the UPA government will fall or will stay. This will become another nail biting finish going down to the wire.

As of now, the UPA has 269 MPs supporting it, 268 against it and 3 are still undecided. If the Opposition gets the support of at least two of these and the UPA gets one then it is going to be a tie and the speaker would have to vote. The speaker, Somnath Chatterjee, being from the Left, it goes without saying where his loyalties stand but to be fair to him, nobody knows who he will vote for in case of a tie, not even the Left. The closest finish so far was when the Vajpayee government lost the no confidence motion in 1999 by a single vote when Jayalalitha led AIADMK withdrew support from the 13 month old government. However, Vajpayee came back to win the elections and even lasted the full term as the leader of a coalition government.

Attached above is the daily chart of the Nifty. As suggested in yesterday’s post, 4165 was supposed to act as the resistance and today’s high turned out to be 4168 before closing at 4159. It is still not possible to determine whether this resistance would be broken or not. If the prices go above 4165 tomorrow, they could go to the top of the range at 4200. A breakthrough above 4200 will also mean that the next target for the Nifty would be 4600. I personally feel that tomorrow is going to be a dull day for the markets in terms of price change. But I do not rule out a volatile session (without any major change in the closing price). I do not expect the Nifty to go above 4200 before the vote is cast. But there may be a lot of participants who would like to close their long positions before close tomorrow, and some may even be willing to go short, to cash in on the opportunity if the government were to lose the trust vote tomorrow. This may take the markets down. The next two days are going to be news driven days and for technical traders it is the best time to go on a holiday since technical analysis does not work on news driven days.

There are no international cues to talk about right now. The European markets were nothing to write home about while the American markets, at the time of posting, were trading flat. Crude was about $2 dearer but that was only to be expected after such a sharp fall was seen in the last two days.

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4000 Stop Loss for Open Long Positions in Nifty

Today was one day when the Nifty kept going up throughout the day, except for a sell-off that was encountered in the last hour and a half. At one point the Nifty went high enough to cross the figure of 50 points in the green but after the sell-off, in the last 30 minutes went as low as 40 points in the negative but then managed to close only 9 points below yesterday.

The Nifty, as seen from this 30 minutes chart shows that the index has been moving within this trend channel since the beginning of the month. It is constantly finding resistance near the top end of the channel and support near the bottom end. As seen from the trend channel, support comes in close to 4000 levels while the resistance level lies between 4230 and 4250. A move outside this trend channel should give us a reasonable big move. The two dojis seen at the end of the day and the Relative Strength Index (RSI) within the black circle, which shows that it is finding it difficult to go below 40, suggests that this downmove maybe over for the time being. But like always, every positive is accompanied by a negative, and in this case it is the fact that the last rally that was seen today, failed to reach the top end of the line. Now, which side of the channel will the prices break is for the market to decide. We shall just follow the trend as and when that happens. As of now, we keep the stop loss for short term long positions below 4000.

The fact that every positive is accompanied with a negative is what makes the markets so fascinating and thrilling. This is why the uncertainty comes in and why one person wins while the other loses money. If there is no uncertainty in the markets, the thrill will be lost. And this is why the markets, time and again, continues to remind us that our analysis is no good and is thoroughly wrong. This is why it is improper to predict the markets and wise to follow the trend. This is why we analyse the markets just to get an idea of what may happen and be prepared with a strategy if that does happen. And whether or not, that will happen is totally the market’s prerogative.

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