Wednesday, July 2, 2008

Smart Rally in Stock Market

The Nifty made a new low today at 3848. 25, but what is significant is that it rallied from these levels with gains of nearly 200 points during the day itself. Today's market move should qualify as a bullish reversal day. Now that a low is in place, we will soon find out if the bulls have enough strength to provide support at this low.
The short term trend is UP today after this bullish reversal. The Index needs to close below 3848 for this trend to change to down. We now have a pivot low against which we can compare the movements of the Nifty. So far as 3848 holds, the short term trend should be up.
The Intermediate trend remains down. One day cannot change this trend to UP.The last minor high was made at 4325. A close above this pivot will change the intermediate trend to up.
Is this the start of a new bull market ?
Well, considering the pessimism that prevailed even today in the morning, a four hour rally cannot change the overall trend of the market. Fortunately, the Market can answer this question by moving up and closing above 4325. We wll then assume that the down trend is over.
Is this a bear rally ?
That's what we assume so far the Nifty remains below the last pivot high at 4325. Once this is taken out, we classify this rally as the first leg of an up move.
If I wait for 4325, then will I miss all the up move ?
Why should you think so ? If this is the start of a new bull market, then surely the Nifty will go much higher than 4325. If this is a bear rally, then by waiting it is possible to avoid an unneccessary whipsaw.