Monday, July 14, 2008

Nifty in a Box

The Nifty again moved in a narrow range today, suggesting indecision. It seems the bulls and bears are equally matched. However, periods of indecision do not last long. The Index is now locked inside a trading range, which has resistance at 4200 and support at 3850. These are the boundaries of the range. A move out of the range should give a trending move.
The Nifty is currently at 4060. It may have to travel a lot before it manages to breakout from resistance or breakdown from support. Fortunately, another significant support has developed around 4000. Then, a breakdown from 4000 is a sell signal.
The Index is in a trading range. A sell signal had come on Friday when the Nifty broke down from 4100. A second sell signal will come if the Index breaks down below 4000. Buying is suggested if and when the Nifty moves above 4200.
Traders can set up positions in the Nifty using Nifty Futures or Options. What are these positions ? Go short below 4000. Now, there is one more trade possible. Since we have 4000 as a clear support base, traders can go long above 4000 with a stop and reverse trade if the Nifty does fall below 4000. Traders can use their discretion in deciding when the 4000 breakdown will be considered valid - If the Nifty closes below 4000 or if the Nifty goes below 4000 during intra day trading. The difference is not significant, it is important to decide on a rule, then follow it properly.