Thursday, August 20, 2009

Narrow Range ready for big move

For the past three days, the Nifty has compressed its action between a range - 4500 to 4380. This is good news, because such a narrow range is not likely to be sustained. Therefore, a breakout / breakdown is imminent. What will be the direction? Why not let the market tell us this.
wildeazoscar writes in comments - "And what is the big move target if 4730 is broken on upside? At least an amount equivalent of the trading range? That should guarantee 5660 at least!!"
Here is a valid point, and the I have thought about it, without reaching a conclusion. The Nifty is in a large trading zone between 3930 - 4730 approximately. A breakout should see an 800 point move (width of the trading range) which gives 5530. On the downside we have a target of 3130. For most of us, 3130 is easier to accept since we did see these levels just six months ago, but 5530?
Well, among numerous posibilities - (1) The upside target is reached in many months, with lot of volatility, (2) The target is not touched at all, (3) The Nifty creates the mother of all bubbles, taking itself to 7200 (target for the inverted head and shoulderwhich gets confirmed around 4760).
For 3930 to breakdown, we will enter a bear market. Why not? If the two reliance siblings keep on fighting, the Govt could one day announce gas a a national resource (put the gas under govt control) and that will bring the market down to 3100.

So, take one step at a time. Currently, we are looking at a narrow range. That breakout / breakdown will give a trending move.

2 comments:

SANDEEPARORA said...

THANKS YOU FOR MENTORING US

Sunil said...

sir, how to define a range? from may end low to mid high the range was 4090-4693, traded in this range for over 25 sessions. then suddendly there was a downward breakout and even closed below 4090 for 2 or more days. Then reversed and traded above 4693 for good number of days and even closed above it. Means both were false breaouts?
Similarly, till 19th aug, 4360 was not voilated, but on that day, it got voilated but reversed again.

Cud you guide as to how to jugde these situations?

Regds
Sunil