Tuesday, August 19, 2008

Multiple Supports For Nifty Between 4330 and 4380

The Nifty went down the fourth day in a row today. That was what this column had been expecting since 6th Aug 2008. To read the analysis of the past few days, you can read the newsletters for 6th Aug 2008, 7th Aug 2008, 11th Aug 2008 and 12th Aug 2008. All this prediction about the fall was made while the market remained in a narrow range and before the actual fall started. Now it has been 4 days into the fall and there are signs of support coming in.

Nifty Daily Chart - Multiple Supports Available

As mentioned in yesterday’s post, there are supports available on the 30 minutes and 60 minutes charts between 4330 and 4350 and on the daily charts near the neckline of the head and shoulders pattern, which could be anywhere between 4330 and 4400. Seen above is the daily chart for Nifty. This chart has three new trendlines drawn and all of them suggest support just below today’s low of 4379. With so many supports available between the 4330 and 4380 levels, there is quite a possibility that this support may hold. In case it does hold, and the Nifty crosses today’s high of 4448, we should become buyers. In case we encounter weakness tomorrow and the Nifty comes below 4330, we are looking at more downside which may (or may not) find support near 4200. Looking at the Relative Strength Index (RSI) also, it can be seen that there is support for it too near the trendline. Despite a fall of 270 points in the Nifty, which works out to roughly 6% fall in the index, the RSI has fallen from 64 to 50 only.

Since so many supports are available at 4330, we should assume that this support is likely to hold. And if it is broken, it will be quite significant for the markets and while the next support is available near 4200, even that may not hold. What the markets actually decide to do is for the market to decide. For tomorrow (today) the plan should be to go long above 4450 and go short below 4330.

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