Wednesday, October 8, 2008

Nifty Resistance At 3630, Support At 3540

Today’s movement in the Nifty was not totally unexpected. It was to be expected that the P-notes issue being eased and the CRR slash would lend a helping hand to the Nifty, which did happen because the Nifty opened with an upward gap of about 125 points. But the overall sentiment being negative, it was also to be expected that the market would eventually lose its way and come down, and that also did happen because at one point during the day the Nifty was down by as much as 50 points. But a final surge that lasted about an hour and a half took the Nifty back up to make it close with a gain of 4 points, thus making a doji for the day. (A doji, as explained in all previous newsletters, is a day where the opening price and the closing price is the same or is very close to each other. Such a candle has a non existent body but has a lower shadow and an upper shadow, the exception being gravestone dojis and dragonfly dojis where one of the shadows is also missing.) The BSE Sensex, not having the luxury of having 50 stocks in its composition and not having gainers like National Aluminium, Reliance Power, SAIL, Tata Communications and Zee Entertainment, closed about 106 points in the red.

World markets continue to be negative. Asian markets remained weak, European markets were, more or less, flat but the American and Latin American markets continue to trouble us. The Dow Jones, at the time of writing, was trading 290 points in the red while the Nasdaq Composite was almost 75 points down. Crude oil was trading at almost the same levels - $88 a barrel while the rupee versus the dollar is now touching almost 48. Gold continued to remain good – after a jump of $33 an ounce yesterday, it has gained another $24 today, obviously as demand for a safe haven increased and on speculation that the central banks may slash interest rates.

Nifty 30 minutes chart - Resistances Close By, MACD positive

Attached above is the 30 minutes chart of the Nifty. The daily chart is not shown here but it has already been mentioned that today’s candle was a doji. A doji, after a downtrend, represents indecision and confusion and indicates that there may be a short term increase in the prices. In the chart above there are two trendlines drawn. The steeper trendline, suggests a resistance near 3630 levels. If this level is crossed decisively, then we could see it go to the next resistance, as shown by the longer trendline, close to 3850. Since the trendline is sloping downwards, every new candle will keep bringing the resistance closer. Support comes near the brown line near 3540. A move below this level would not give us any support before 3130 levels. As suggested yesterday, that is the next support level but the market, being the supreme being that it is, may find a new support before 3130 wherever it chooses. Also shown on the chart is the Moving Average Convergence Divergence (MACD), which gave us a buy signal early in the morning today and continued to remain positive throughout the day.

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