After a big early morning decline on Monday, the Nifty rallied from 4966 (Monday's intraday low) and by the end of Tuesday (today), the Index had gained over 100 points from Monday's low, to close at 5066.20.
The Big Picture continues to suggest lower levels ahead. We have lower highs & lower lows in the Nifty - a classic picture of a downtrend. The tops that were made were rounding tops,which appear during a distribution process.
Also note the big range bars during the decline. We should contrast these bars with the narrow range bars during the up move from January to April. Bear markets are marked with big moves, while bull markets are soft, slow and steady performers - they move up quitely.
How will the down move end?
For now, a close above 5206 the recent minor high will give the first indication of a trend reversal.
Snap Back Rally
In the initial stages of a downtrend, participants do not believe that the trend has changed. A decline is considered as a dip which should be bought. Therefore, most traders start buying at the first signs of stability, leading to monster rallies. These rallies fizzle out, as we saw last week. But, dramatic snap back rallies are signs of market reversals (not of strength).