This entry is written at 8:40 PM on Friday (the date stamp should confirm this), without the benefit of hindsight. This means that US markets are still trading, and, we do not have the benefit of knowing how they closed. So, the analysis is based on the Nifty, not influenced by American markets.
A correction was anticipated. This has come about. At 4430, the Nifty is much healthier than it was at 4640. So far so good. My technical tools suggests a price and time target for this small correction. This is given below:
Price Target Range: 4355 - 4225
Time range: August 18 to August 21
This suggests that a low point should be made between 4355 and 4225 in price, and between August 18 and August 21 in time. Usually, one of the two targets(time or price) are hit, in a small number of cases, both are touched.
Now, these targets are just that - numbers. There is no assurance that these will be met. Empirical evidence suggests that these targets have some forecasting value, but require proper money management to be of any benefit.
There is also the concept of overshoot. If the Nifty were to fall below the lower end - 4225, the signal will be more weakness since support did not hold.
On the chart, the Index has significant resistance at 4600 - 4700 which will not be easy to cross. The basic theme then is a range bound market. At dips, there is a buying opportunity since we have the possibility of some up move till it reaches resistance. Near 4600, avoid any buying.
I should point out that my short term trading is based exclusilvely on mechanical trading systems. The targets given above are used to develop a directional call for swing trades & for taking up option positions. This means, currently, I do not have any long positions in my swing trades. Next week, I will try to build some long positions if I get buy setups, since a short term cyclical low may also be expected. I keep a stop for all swing trades, always.
How will I get buy setups ? Search for stocks in an uptrend which are currently seeing a correction. Few stocks may qualify but that's okay. There is no need to venture if there are no signals.
As usual, my request is to keep visiting, I should add more during the weekend.
I have a new entry on Trading Plans at the Wealth Blog. Read It Here