Thursday, October 16, 2008

NEW LOWS AGAIN, Nifty closes at lowest in 26 months

On 10 August 2006, the Nifty closed at 3260. Since then, the Index has never closed below 3269.30 - today's close.
Now, new lows are not bullish. yet, we should remember this saying: "The Trend is your friend until it comes to an end".
Calling the low or high of any move is dangerous. We will not try to do this. But, the daily chart for the Nifty does have some interesting possibilities.
The 14 RSI shows signs of possible divergence. I say 'possible' since the down move is not over yet, therefore the RSI may move down cancelling the possibility of a divergence. As of today, the Nifty has made lwoer lows, but the RSI has not yet made a lower low. It can easily do so, but it has not yet done this.

How do you trade a possible divergence ?
Well, this unconfirmed divergence is NOT a buy signal. It is an indication of a possible bottoming out process. The first signs of bottoming out will come if the Nifty closes above today's high - above 3330 over the next few days. If and when that happens, buying is possible with a stop below the low of the down move.

A Trading Range
Hidden inside the volatility is a small trading range for the Nifty. With support at 3280 and resistance at 3500, the range is above today's close. If the Nifty is going through a base building process, then we can expect the Index to move up inside this trading range, looking for a rally to 3500.

What happens if the market continues to move down ?
Well, it is business as usual. We should see the Nifty sliding down, making these new lows. So what else is new ?

How low is Low ?
Briefly, lower than you can imagine. So, avoid long term buying. Buy only blue chips. Do not run after momentum stocks of the previous bull market. the next bull run will find its own favorites.

2 comments:

Krishna said...

Sir,
I follow your advice on nifty very keenly and i am very much thankful to you on the advice you gave to sell when nifty broke 5500 and the vaccum which took it to 4500.I ve got a property,the value of which has depriciated by 20% since jan.whereas blue chip companies are available at 20-50% max of value they were available in jan 08. so is it advisable to sell the property and invest in bluechip companies on every dip from here on

Shashank Jogi said...

'Possible' is the key operative word here, isnt it?

Everything in technical analysis is like a self fulfilling prophecy. For example, if enough people believe that a support would hold, and they act upon such a belief by buying/abstaining from selling, the support holds, tehreby confirming the support. Supports do not exist, we create them.

Any indicator in technical analysis only has a chance of turning out correct and hence works sometimes and fails some other times.

We seem to be in a major epochal event in the world, a truly exceptional time, where many a technical tool is not working. Oversold markets become deeply oversold and then madly oversold. The big picture is perhaps negating any divergence. But who knows, the divergence based trade might just work out!

But, in times of grat turbulence, I think it is better to simply observe and see how the chips fall rather than venture out a trade just because you have to trade.