Monday, September 15, 2008

Nifty At Crucial 4200 Support, Wait for Next Move

As expected the Nifty, after making a confirmed double top pattern on the 30 minutes chart, came down. Though, the target for this double top formation was 4160 but there was support on the daily charts at 4200. The Nifty respected this support, made a low of exactly 4200.15 and then recovered to end the day at 4228 to close 62 points down while the BSE Sensex ended the day with a loss of 323 points. European markets were good on Friday and ended the day with gains between a percent and 2 percent. The American markets, however, were flat. Crude also remained, more or less, flat and maintained support at $100 to end the day at $101.

Nifty Daily Chart - Support at 4200, Breakdown may see 3800

Seen above is the daily chart of Nifty and, as can be seen, the Nifty has now reached the bottom end of the range at 4200. It is expected to find support at these levels, unless it proves otherwise. In the bottom half of the chart is the Relative Strength Index (RSI) and that shows that it has not yet reached 40 (it is at 42, to be precise). The price at the support level and the RSI still above 40 may indicate that the support maybe respected by the markets. In case they don’t and 4200 is broken decisively on the charts then we may be staring at 3800 in the face.

Since we know that we are at the support level, this may be a good time to buy Nifty futures or Nifty calls. If the markets were to break 4200 then we shall close our long positions with a small loss. For the record, Nifty 4200 calls are trading at Rs.138/- while 4300 calls closed ar Rs.90/- per Nifty. The lot size happens to be 50 Nifties.

Update: The Rupee to Dollar exchange rate has moved up to Rs.46 to a dollar. Last time the dollar touched 46 was on Sep 29, 2006. Asian markets have opened and are trading weak with losses between 2 and 4 percent. Nifty in the Singapore market is 155 points down at 4070. Expect Nifty here too to break 4200. Do not take any long positions.

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  1. thanks alot for the update as last time when you give advise to buy @ 4400 and support @ 4380 i bought call and stuck now ..............

    we may be correct in reading charts but global condition are getting worse day by day ............

  2. Deepak, last time too I had specifically mentioned that stop loss for long positions (futures or options) should be maintained at 4380. And as far as I remember it, the Nifty opened much below 4380, therefore there was no question of buying when the stop loss was already taken off in early morning trading. The only way to be successful in stock trading is to follow discipline.