Tuesday, August 31, 2010

Correction continues

One of the underlying principles of technical trading is: markets will correct.

The corrections will not come on demand, but they are inevitable. just when 'everyone' said that 5500 has become a new base, the Nifty decided to fall. Today morning as I write this, the U.S. markets have gone down overnight. Asia is lower and the Nifty may well test 5350.

I feel there are two trades in the Nifty: First, a sell on rally for a test of 5350 or lower. Second, the bounce from whatever lows are made. I usually take only one side of the trade (long or short, ignoring the signal for the other side) but these two trades seem to be worth taking.

I cannot say if we are in 'the' correction. We may well be. If this is the normal down move after an intermediate uptrend, then we should expect 500 to 600 points of decline from the top, eventually.

1 comment:

PowerYourStocks said...

Sudharshan,

Good to see your blog.

Although we cannot say for sure whether we are into correction or not, we can definitely draw conclusions based on some market specific indicators.

I think, volatility based data, especially from options side, is definitely suggesting that we will move down. Now since so many people are expecting the markets to go down, I'd assume that markets will move down with either a gap down day or will move up first and will then correct viciously.

Tc,

Raunak