Thursday, July 24, 2008

Pullback Starts, Nifty Closes 43 Points in the Red

The Nifty was just waiting for a negative trigger to fall. The Nifty opened about 60 points in the green and then throughout the day kept falling. What was the negative trigger early in the morning? Probably none. It did try to recover at about 11AM but did not succeed. Later in the afternoon European markets also opened weak and then our markets could not recover though it staged a recovery of about 30-40 points before closing. In spite of that recovery the Nifty closed 43 points in the red while the Sensex closed with a loss of 165 points.

Nifty Daily Chart - Resistance At Trendline

Attached above is the daily chart of Nifty with two downward sloping trendlines, a rectangle between 3800 and 4200 and the RSI. The Nifty found resistance exactly at the second trendline (the one on top) as marked on the chart. That was where the resistance was expected. The Relative Strength Index (RSI) as marked in the brown circle shows that the RSI turned from a level of 60. This is not bullish for the markets. It also shows that we may not be completely out of the woods. According to me, the levels of the RSI give a very good indication about the markets. I feel markets are bullish when RSI goes above 60 and bearish below 40 and sideways between 40 and 60.

Okay, a pullback is coming. Where is this pullback going to stop? When do I buy? Frankly, we do not know where the pullback will end. The markets shall decide that. We shall follow the markets and will position ourselves to buy when the pullback is over. We can try and analyse where the support levels are. The first support is near 4310, the second one is the top of the rectangle, i.e. 4200, the third at 4000 and finally at 3800. We don’t know where it will find support but we shall buy when the market rises for two days in a row but only if the low of the pullback is above the previous low of 3800. Keep reading this space everyday and we shall know when the pullback is over and what is the most opportune time to buy.

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