Wednesday, July 8, 2009

Breaking the Market's neck

This is the heading of an article in marketwatch.com , tracking the S&P500, the US Index. The summary is : The neckline of a head and shoulder has been broken in the US markets. " we arrive at a target for the S&P cash around the 822 level."
That's 6.7% below where the S&P closed on Tuesday, of course. An equivalent drop in the Dow would bring it down to the 7,600 level.

In India, the Nifty has seen the similar formation of a bearish head and shoulder. Now, even if this pattern works out as expected, every day will not be a down day. There will be rallies in between. But the trend is likely to remain down, with a possible target of a zone between 3600 to 3800. This target is not difficult to imagine. The mid point of this zone is at 3700, which is 380 points below today's close. From Monday to Wednesday, the Nifty has fallen 400 points from its intra day high to low. Therefore, the next leg of the decline may be similar in points to the initial decline, but may take more time.

What can go wrong in this analysis? Well, the market can prove us wrong. Resistance should now come around 4250 which was the support zone for the Nifty when it was in the trading range. A close above 4250 will require a relook at the technical position.

1 comment:

men said...

Mr. Sudarshan,
On CNBC you said that if one had a 3 year view then one could buy IT stocks, could you please explain what one should look for a long term view, I track infosys and it has been making lower highs and the last 3 peaks are 2415(15-2-2007),2020 and 1850(ignoring the post election high of 1900+) though it has been maintaining 1050-1080.
Thanking you in advance.