Sunday, July 13, 2008

Earlier Nifty Lows to be Tested Soon

Friday was a bad day for the markets. Markets opened flat and slightly upbeat owing to the excellent results posted by Infosys. Good results were expected to offer a positive kick to the markets. Though, the mood was upbeat, yet there was cautiousness in the markets as the market was waiting for the future guidance. Sure enough, the Infosys management increased the guidance for the next quarter and for the whole year. But what it also did was that it did not increase the guidance in dollar terms. That started a brief sell off. But soon the inflation numbers came in too with inflation increasing to 11.89%. I wonder what caused the markets to go up after these numbers came in. But whatever it was, it didn’t last long because the IIP (Index of Industrial Production) numbers came too and that showed a growth of only 3.8% as compared to over 10% last year. I think that was what caused the massive sell-off which took the Nifty 200 points below its high but closed 113 points below Thursday’s close.

Nifty Daily Chart - Rising Wedge??

Looking at the daily chart of the Nifty attached above, one can see that the Nifty was rising in a small channel since the last two days. It was clear that we would come in an intermediate term uptrend if, and only if, the Nifty were to cross 4300 levels. That failed to happen, which means that this was just a bear rally which fizzled out and which could take us to levels much lower than the earlier lows of 3850. However, there is a fairly strong support available between 3850 and 3900 which should stop the Nifty from falling below these levels. A move below 4000 will be fairly conclusive proof that earlier lows may be tested, if not broken. But the Relative Strength Index (RSI) shows that it has not gone below 40 in spite of this sharp fall yesterday. If this support at 40 holds, we may recover from the current levels. But, seeing the momentum of the fall on Friday, that seems to be only a remote possibility.

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