Tuesday, August 12, 2008

The Dog that did not Bark

"Is there any point to which you would wish to draw my attention?"
"To the curious incident of the dog in the night-time."
"The dog did nothing in the night-time."
"That was the curious incident," remarked Sherlock Holmes.
This is one of the 10 most famous quotations from Sherlock Holmes.
What is the curious incident of the retail investors ? There are no retail investors in the market.
That is the curious incident.
It seems that the current rally is fuelled by speculators & professional traders. A trend can be started by speculators but needs public participation to sustain. This is clearly absent. The absense shows itself in low volumes, vacant stock broker offices, market responses to any kind of pessimism (markets fall, thus suggesting that markets have not yet reached a bottom).
On the charts, we have seen the inability of the Nifty to sustian itself above 4600 overhead resistance. Yesterday, the Nifty closed above 4600. We suggested that the Index must close above 4600 for at least three days to confirm a breakout. This did not happen as the Nifty went back to close below 4600 again. This resistance is acting as a big barrier. A strong, momntum driven market does not bother about overhead resistance. But, the Nifty is not able to cross this resistance, giving a message - bull are tired.
For the short term, the Nify is locked inside a narrow range between 4500 to 4600. A move out of this range will give a trading opportunity. Buy above 4600, sell below 4500. You will also note that I give a lot of emphasis on cycles of contraction and expansion. In fact, Trend Mechanic (http://www.technicaltrends.com/) the software that I use for analysis has a lot of specially designed features for locating contraction / expansion.

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