Sunday, August 3, 2008

Nifty Jumps as IAEA Approves Nuclear Deal

The Nifty, on Friday, opened weak and remained subdued for the first one hour. After a very narrow range on Thursday and with a breakout gap down opening on Friday, it seemed as if the downtrend would continue. However, the market had different things in its mind. Nobody knows what took up or why did the markets improve on Friday because soon after 11AM the markets reversed and since that time it was a virtually a unidirectional upmove for the markets till closing time. And this was despite the negative bias with which the Asian markets closed and the European markets opened. Despite all this negativity all over the world, what was it that was taking the Indian markets up, nobody knew. Later in the evening the news came out that the IAEA had approved the India specific safeguards agreement in the nuclear deal and that the deal would now go to NSG for sanction. The US has promised to get the NSG process expedited.

Nifty Daily Chart - Big Volatility After Narrow Range Day

The daily chart of Nifty, as shown above, shows that after the narrow range day seen on Thursday, we saw a high volatility candle on Friday. This was to be expected, but what was not expected was that it would first give a false downside breakout and then change itself completely during the course of the day. Could it have happened that some market participants had come to know that the IAEA had approved the nuclear deal? It is quite possible since such things keep happening in the Indian markets and the world over that the smart money gets access to important market sensitive news much before the rest of the market does.

Anyways, now that the direction is clear, let us decide what to do tomorrow. Resistance is close by at 4450 (the closing was 4413), only 37 points away. But with the IAEA news now becoming public, that resistance should be broken through in the first one minute of trade. A move above 4450 will give us a sign that the market may now change its intermediate term trend to bullish since, then the prices would have gone above the downward sloping trendline seen in the chart above. But an actual confirmation of an intermediate term uptrend would come if the prices were to go above the previous high of 4540. All of us should be buyers above 4540, while persons with more risk taking capacity can plan to go long above 4450. I would suggest buying some Nifty calls having strike price of 4500 and 4900 for best results. With some luck we should be able to get them tomorrow early morning at Rs.135 and Rs.23 approximately.

It was a busy weekend for me and it is now late Sunday night. I would like to post this entry as early as possible so that then I could go and hit the sack. I will go into the details of why I am suggesting 4500 and 4900 calls tomorrow. I am also planning to discuss what the next target of Nifty should be after the change of trend is confirmed. Please keep looking at this space for regular and daily updates about the markets.

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