Wednesday, May 27, 2009

Another Trading Range?

The Nify has this tendency of breaking from a consoliation through a wide range bar, then going into a huddle, making another consolidation. This seems to be the pattern once again, as the Nifty creates a trading range after a massive 600 point wide range bar last Monday. The range is between 4100 and 4400. Three hundred points is rather wide, but then, we live in volatile times.

What are the possible scenarios?
One. The Nifty spends a few more days inside this range, then breaks out above 4400, giving a target of 4700+. Because the preceding trend is UP, we should assume that the move out of the range will also be up.
Two. The Nifty actually decides to take a deeper correction. It breaks down from the range, moves below 4100 and looks to find support at 3800 approx. This scenario is possible if the world markets decide to begin a correction.
Three. The Index moves out of the range boundaries but does not reach the targets. Instead it defines a wider trading range and spends many weeks in it. This will be the tricj\ky scenario, since a breakout or breakdown will attract many tarders who may find themselves caught as the Index remains inside a trading zone.

There are many other possibilities which I have not discussed since their probability, at the time of writing, is low. The purpose of scenario building is to be mentally alert on the different possibilities in the market. We also go through a mental exercise of planning our responses.

4 comments:

Sunil said...

Yr observation is right.I would like to one view. During this uptrend, mkt has been consolidating in a range and then giving a breakout with large gaps leaving shortsellers running for covers. But after few days, market goes back to retest the highs of the previous consolidating range.

But this has not happened in this large upward breakout. Logically, nifty should have tested 3717 (NS high) or 3730 (NF high). Am i being bearish? or my reading wrong?

Sunil

Krishna said...

Dear Sir
is there any broker/interface available in India providing rule based trading like "Tradestation" does it in other countries but not in India perhaps..Plz guide.
regards

Viral Rajnikant Dholakia said...

Very True Mr Sukhani,

Markets won't Ring the bell to let us know, "Thats it for now, mates! Lets start correction now."

People have to be sensible in booking gains (At least Part Gains) when there are profits on the table.

Alas!! This may be too soon to presume a start of a new bull phase so soon, especially after a deep phase of draught in between.

May be markets need to consolidate side-ways or on the downside for a substantial period before a new dawn for markets. For that, we have to look for signs of this 'Momentum' to subside.

wildeazoscar said...

may i point out two things---
1. Most of the shares are having an abnormally high P/E ratios with a far far departure from fair value( eg. Reliance with a fair value of 1650 is trading at 2300)
2. Thursday showed DII acquiring an equity holding of 19000 Crores and Short selling equity futures of 12000 Crores( with a 30% margin that amounts to 36000 Crores).

Don't youy feel that smart money is getting ready to pull off the rug from below the feet of the retail investors?

with the upper target of 4500 reached for 2009, the market is showing unnatural euphoria and is getting ready for a downpull of NIFTY to 550 level