Sunday, June 29, 2008

Weak Opening on Nifty Likely

After two days of impressive gains, the Nifty fell flat on its face on Friday to reach near the earlier lows near 4100. It was mainly because of highly negative global cues. The Dow Jones and Nasdaq were both heavily down. The European markets were down and so were the Asian markets on Friday. On account of global cues, Friday wasn’t a good day either, with the Dow Jones falling more than a hundred points and the European markets also closing about half a percent down except the FTSE 100 which kept trading with a negative bias throughout the day but closed just a touch in the green. This makes us realize that if Asian makets are no better on Monday then we are looking at another weak opening which will push us below the previous lows, which lies only 43 points below Friday’s closing value of the Nifty.

When there is no sense of optimism left in the markets, it makes predicting the lows very difficult. This is the most difficult times of the markets. Optimism is just not present near the end of the bear markets and in the beginning of bull markets. Every rise is seen with skepticism and supports break relentlessly. Maybe our prediction of spending 34 weeks (or 55 weeks) in the bear market is coming out to be correct.

Earlier Nifty Prediction

A screenshot of what I had written then is given above. When there is no optimism present, we don’t know which support is strong enough to hold and which weak enough to break. We can’t predict the lows but we can look for supports.

Nifty Weekly Chart - Possible Supports

I leave you today with the weekly chart of Nifty with some possible support lines drawn on the chart. The nearest ones have been drawn as thick green lines while the lower supports have been drawn as thin ones. It can be clearly seen that there are two supports near 4000, one near 3500 and another near 3100. It is also expected that 4000 being a round number will provide some psychological support too.

I just used a sentence in the previous paragraph that optimism is just not present near the end of the bear markets and in the beginning of bull markets. Does that mean that we are near the end of the bear market? Well, nothing can be said as of now. We may be near the end or we may be just 6 months into a long 2 to 2 and a half year bear market. All I can say, at the moment, is that while optimism is absent these days, bear markets always tend to finish with a lot of panic and a capitulation. Incidentally, that too has been absent right now. But, at present, the 4100 level is of a lot of importance. With weak global cues, 4100 may be broken tomorrow. But if it remains below 4100 for an extended period of time (about 2-3 hours into the opening) then we may be looking at more downside. With no optimism present, it is needless to say that one should refrain from taking any long positions in the short or medium term. While it does not make sense to take long term plus positions also, I feel that over a longer term period, timing the market is not of much importance. Fundamentally good stocks will never give you a loss if you hold them over a long term horizon. For long term investors any time is the right time.

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