Sunday, September 7, 2008

Trending Move May Come Soon Enough

The Times of India newspaper on Sunday came out with a very interesting headline which read “India N-abled” With the NSG giving their decision in favour of India, the 34 year long period of ‘nuclear apartheid’ has ended for India. The report also said that India now has the unique status of being the only nuclear weapons power to be allowed global nuclear commerce without signing either the Nuclear Non-proliferation Treaty (NPT) or Comprehensive Test Ban Treaty (CTBT), which until now was a precondition for entering the elite nuclear club.

Ex-president and a prominent nuclear scientist, Mr. APJ Abdul Kalam says that the NSG waiver is good for India and that the country can choose to break the ‘voluntary moratorium’ on further tests in ‘supreme national interest’. He does not talk about the implications, though. Maybe, that would lead to another few decades of nuclear apartheid, but come to think of it, if that does happen we would not be any worse than what we already are. So, this NSG waiver is in the ultimate national interest of the country. This should be good news for the markets and we may see them go up on Monday, which may, eventually, take us outside the upper end of the range at 4650. According to Mr. Sudarshan Sukhani, the reality is that the deal itself is just a small help to the massive task of uplifting Indian poor to a better standard of living and that it is likely to play an insignificant part in the removal of poverty. Yet, he feels that the reality to be realized by the markets could take long enough to give us time to break out of 4600-4650 zone and reach 5100-5200 levels.

Nifty Daily Chart - MACD, ADX and Resistances

Seen above is the daily chart of the Nifty. I have added a lot of tools to the chart today and I hope it does not become very confusing for my readers. Superimposed on the prices, in brown, is the Moving Averages Convergence Divergence (MACD) which shows that it is now close to its signal line and has still not decided whether to go above these levels or to come below those. Hopefully, we should have an answer in a day or two, though the positive news already seems to have given the answer. Second, I have marked the recent range within which the Nifty seems to be moving, i.e. between 4200-4650. As is obvious from the range, there is support at 4200 and resistance at 4650. We can get a tradeable move in the intermediate trend only if the market were to come out of this range, upwards or downwards. Third, I have drawn a downtrending line marked AB which will provide resistance to the prices if it does decide to break above the upper end of the range at 4650. Fourth, I have drawn a line parallel to AB and have marked it as CD. This line, as can be seen, has been providing support/resistance at various levels in the last eight months. Surprising how just a line parallel to a trendline can do that. The most recent resistance was provided at 4515 on Thursday. Will it provide resistance again tomorrow or will this line be crossed and then become the support, is yet to be seen. In the bottom part of the chart I have attached the ADX indicator which, as mentioned in earlier newsletters, reflects the speed of a trend and extreme levels, such as those below 15, represent that one particular trend may now pick up momentum and the markets could follow that trend. However, it fails to give the direction of the trend and other indicators have to be seen to ascertain which way the trend is likely to shape up. The simplest way to find that out is to see which side of the trading range the Nifty breaks out on. The ADX value for the Nifty on Friday was 11 and never has the ADX reached such extreme levels, at least not in the last two years. We should soon see a big trending move come about.

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