Thursday, May 29, 2008

Nifty Reverses From Resistance

The Nifty was expected to go up today too and a target of 4990 was expected but it was mentioned that there is a fair bit of resistance between the 4935 and 4950 zone. That was exactly what happened today. It kept moving between 4920 and 4950 in the first half of the day before the bears took control and pushed the markets downwards. The crash was sudden and sharp but was expected. We also saw the end of the F&O (Futures and Options) month today.

Nifty ChartSeen above is the 30 minutes chart of the Nifty. This chart has got 2 colours of trendlines – light green and dark green. The light green trendlines show why the Nifty found resistance near 4950 today. On the other hand, the dark green trendline shows where the support is – near 4830. You can notice how the last candle went all the way down to 4804 and then closed above our support at 4830. This small breakdown of prices below the trendline and then bouncing back above it does not signify a break of the trendline. A breakout or breakdown is significant if the prices penetrate the trendline decisively and with high volumes. It will usually be a large blue/red candle depending on which side it breaks out on. We still have support at 4830 and resistance at 4950. Tomorrow being the first day of the new F&O month, the market may, I repeat – may, stay within this range for sometime before moving below the 4830 trendline.

Looking at the bottom half of the chart, which happens to be the Relative Strength Index (RSI) of the Nifty, we can see that within the green rectangle the RSI found resistance at 60 and turned down from there and that does not give a very bullish sign. As of now the RSI has not broken the upward sloping trendline below it and that is the only thing which shall decide whether the Nifty will find support at 4830 or not. If the RSI holds on then the Nifty should also hold on to 4830 but if the RSI breaks through the trendline, I’m afraid, so will the Nifty.

More on Monday/Tuesday.

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