Monday, August 11, 2008

Nifty Breaks Out, But Wise to be Cautious

The Nifty opened in the green today on the back of strong global cues. The first minute of the day saw the Nifty trading above 4600. Since then, it has been a very dull day for the Nifty since it made a high of 4615 after that and a low of 4580, a range of only 35 points. This narrow range continued upto 3 pm when the Nifty did manage to go 10 points past its high of the day. The positive opening was good for the markets, the fact that it sustained near the highs was also good and closing near the highs was very good. It is the narrow range during the day that worries me since that is not exactly the sign of a breakout.

Nifty 60 minutes Chart - Breakout Achieved but Resistance Nearby

Seen above is the 60 minutes chart of the Nifty. As suggested yesterday, the index was moving within a falling trend channel, which was looking bullish on the hourly charts since the Nifty went into this channel after a good rally. And a falling wedge or a falling trend channel under such circumstances happens to be a continuation pattern. And as expected, the Nifty did break out of this trend channel on the upside. This pattern breakout gives us a target of 5000 on the hourly charts.

But as already mentioned, it worries me that the Nifty stayed within a very narrow range today after a strong opening. I had mentioned yesterday that a ‘trending’ move may come about and today’s move was definitely not trending in any way. If we look at the tick by tick chart or the 5 minutes chart of the Nifty, we would see that the Nifty stayed sideways all day and didn’t give us a clear trend. What gives us solace was the fact that in the last half an hour it went up above its highs of the day and closed at those levels too.

As for the prediction for tomorrow, there is resistance close by near 4650 while support is also not very far off near 4570. A break out of this range should give us a decisive move. Another worrisome fact is that on the chart, while the Nifty is making higher highs, the Relative Strength Index (RSI), during the same period, is making lower highs, as has been marked by the green arrows. This indicates bearish divergence and a break below 4550 would indicate a trend reversal. So, in spite of the breakthrough today, the Nifty continues to be range bound and it is wise to be cautious. Probably, it is just an attempt to trap the bulls.

My readers would think that even in all this bullishness when the Nifty is moving up everyday, I still talk about bearish things only. Well, I am normally not so bearish but what can I do? This time around this upmove is not giving me the confidence that it normally should. We have seen bullish patterns like a bullish head and shoulders pattern and a falling trend channel pattern but unfortunately the breakouts have been far from perfect. Which is why I continue to stay cautious and that reflects in my writing too. Am I thinking too differently? Tell me readers, what do you think of the markets? What is your view of the markets in the next 2 days, the next 2 weeks, the next 2 months, and in the next 2 years? Let me know how differently I am really thinking. Leave your comments below by clicking on ‘Post a Comment’.

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  1. Hi Vikas

    Your study is prety interesting.
    I was seeing the hourly chart before this week and there is one more bullish formation that is of 3bull flag pattern in the hourly chart. Don't know whether that will help you getter better prespective. Looks like Nifty will touch 4800 as the flag pattern was broken upwards before nifty would again rest and see a new direction.
    My email id is

    Let me know your comments.

  2. hi
    your study and analysis as ususal are not biased,thats why they are very informing,totally agree with you that something unseen is round the corner
    so i feel end of next 2 days at least 4400
    next 2 weeks at least 4000
    next 2 months at least 3600
    nezt 2 years at least 7800

  3. vikas,
    ftse,dow jones markets all hv had a breakout . a 2-3 % further rise in these markets is very clearly defined . Its quite possible that we are not reversing our trend downwards till these targets are achieved in overseas markets . 4740 seems to be the 200DEMA . however i have a target of 4900 assuming this rally to wave c ... krishna