Thursday, June 12, 2008

Remarkable rally affirms 4400 support in Nifty

A remarkable intra day rally saw the Nifty close higher than yesterday, inspite of opening a 100 points lower. The Nifty closed at 4530.80, up 7.20 points. This is only part of the story, as the Index had made a low of 4392, thus the final gains are that much more significant.

For the second time this week, the Nifty moved down to test 4400, and found that this support was holding. Does this mean that 4400 may well become the final low in this bear market. Now, this could well be so, but much more consoldiation is required in the 4400 zone to confirm that a low is in place. Meanwhile, we must remember that today's rally could easily be a bear market rally. In fact, we will assume this is so since the market remains in an intermediate down trend.

When will the intermediate down trend change ? There is resistance in the 4700 area. If the Nifty were to cross this resistance, we will have to assume that the down trend is over.

It is possible that the Nifty could move above 4700, then again start a down move ? Yes, of course. This is what whipsaws are all about. But we cannot get frightened of whipsaws. We have to follow the simple rules of identifying intermediate trend. If that results in a whipsaw, so be it.

That PE Ratio again:
The NSE web site says that the current PE ratio for the Nifty is 19.25 This is NOT low by any standards. While we look almost entirely at the charts to determine our trading strategy, it helps when valuations support the formation of an intermediate low. This does not seem to be the case now.