Monday, July 6, 2009

A breakdown!

After remaining in a trading range, the Nifty saw a breakdown on Monday. The Index moved decisively below 4250 to close much lower.
[On Friday, the Nifty closed above 4400 resistance, but a big news event was ahead, so it was neccessary to wait for the event before making a call on the move out of the range. As it happened, after the news, markets fell.]
Apart from the trading range breakdown, the Nifty also closed below the neckline of a bearish head and shoulder pattern. Depending on how you draw the neckline, the potential targets are between 3600 to 3800. This is a significant support zone for the Index. A drift down to these levels is likely.

Lessons learned:
1. Traders should wait to see the final impact from big news events.
2. Trading range breakouts / breakdowns offer significant trading opportunities, even after allowing for a false move.
3. Traders should ignore the hype created by electronic media. If you watch business channels, you will get the impresion that they have the details of the budget before it is announced - STT will be abolished, Infra companies will be given tax benefits, short term capital gains tax will be reduced, ----- all completely false and rubbish, as it turned out.


Manish Chauhan said...

I had a nifty strangle position with Nifty 4300 CA and nifty 4400 PA , I bought 4300 CA which was more in the money because i thought there are more chances of markets going up , the PA was there to support me when I was wrong . Now when I am wrong , 4400 is still giving me enough cushion so that i can ride this downmove and clear of my positions late and still be in profit .

With this kind of positions does it make sense to sell everything at end or get rid of CAlls on any bounce ?


men said...

Mr. Sudarshan,
Today on CNBC you said 3600 is possible, and above 4400 this pull back will be intact, what should be the stop loss for shorts in that case? Will the break of 4090 be a point to short?
Thanks once again,