Wednesday, July 30, 2008

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.

Nifty 30 Minutes Chart - Support at Top of Trend Channel

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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