Thursday, September 18, 2008

Nifty Slips Into Another Range, Gold Shoots Up

The Nifty today opened weak, stayed weak, made a weak attempt to recover after noon but failed and became weaker after the European markets opened weak. So, there is weakness all around. The only thing that’s not weak is Gold, which went up sharply today rising $84, almost 11%.

Nifty 30 Minutes Chart - Slips Into Another Range, No divergence in RSI

After breaking down from the double top pattern formed on the 30 minutes charts a few days ago, the Nifty achieved its target at the opening bell of the third day. After achieving the target, the Nifty has now slipped into another range, this time on the 30 minutes charts, as seen above. This range is between 3950 and 4100. While the target on the daily charts remains 3800, it will be only after this range is broken through on the downside. In case the prices break out decisively above this range, that target of 3800 will be cancelled, at least for the time being.

If the prices do break out of this range on the downside, what will be the target on the 30 minutes charts? Well, this range is 150 points wide (4100-3950) and a breakdown will give us an additional 150 points which gives us a target of 3800 (3950-150). So, well, that conforms to our views/target on the daily charts.

That’s fine, but which side is the market likely to break out on? Well, we don’t know. That is what happens in a range. In a range, not only is the market confused/unsure, it confuses us too. Well, we may get some early indication from oscillator indicators when there is a divergence visible, but in this case the Relative Strength Index (RSI) is also not showing any visible divergences. This means, that we shall have to wait till a divergence is visible (which may or may not come) or for the market to come out of the range. So, for now, it is buy above 4100 and sell below 3950 (in the short term). Investors are advised to wait for now and not take any long positions, at least not till the market either achieves 3800 or breaks out on the upside above 4100.

But the international markets may provide some cues. There is some good news from the US. The Fed government has agreed to bail out AIG by giving them a $85 billion loan (that will be repaid by liquidating the company) in exchange for a 80% stake in the company. But there are fresh concerns about Morgan Stanley and Goldman Sachs (the two remaining independent securities firms), the result being that, at the moment, Dow Jones is trading 240 points in the red while the Nasdaq has lost 75 points. Crude remains flat near $97 a barrel. So, all in all, it looks like we are going to have a downside breakout from the range that we are in.

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