Wednesday, June 11, 2008

Choppy Market with bear pressure

Investopedia.com tells us " The Choppy Market is a stock market condition whereby prices swing up and down considerably but with no resulting overall price movement in either direction. " Helpfully, it adds that "the term is derived from the phrase choppy seas, where a boat will move a lot but not over any large distance as waves prevent it from moving any meaningful distance. The DJIA, for example, may start a six-month period at 10,500 and over the six months move all over the 10,000 to 11,000 range but end the period at around 10,500."

Today's Nifty trading saw a choppy market with the Index moving up 25 points, then down 25 points throughout the day. After the initial euphoria when the Nifty was up a 100 points, the trend was down, although conditions remained choppy (see above).

Once it is clear that the Market is moving sideways, the wisest course of action is to stay away. The only way to trade in a trading range (which is what a choppy market really is) is to anticipate tops and bottoms. This is easier said than done, because it requires us to call a turning point on intra day charts - after all one of these tuning points could well be a breakout / breakdown point, causing a great deal of discomfort.

But, what of the Nifty itself ? The Nse50 closed at 4534, up 85 points from its previous close. The Index closed near the highs for the day, which was at 4541.05. There will be many days when the market moves up (like today), but such rallies do not make a bull market. So far, the Nifty has been making a pattern of lower highs, lower lows on its daily chart. This is a classic bear market pattern. Ideally, the Index will come out of this bear move by a process of base building. The key question is: between what Nifty levels will this base be developed ? Between 4200 and 4800, or maybe between 3500 and 4000, or, who knows, between 2600 and 3000. The answer to this question is easy: wait for the market to tell us when it is likely to stop falling. Till then, follow the intermediate trend, which is down.

In the near future, the Nifty could slowly and stadily see a rally to 4700 where substantial resistance exists. A failure to reach 4700 or closeby should be viewed as a sign of weakness. Traders should expect resistance to come in, in the next 2 days, as the Nifty has already seen a 200 point rally in just one day (from yesterday to today).