Thanks to a holiday, we can take some time to look in detail at the end of day Nifty chart. Here is chart with my notes coming in after.
This is a candlesticks chart for Nifty, end of day. Three moving averages are applied to prices, 20 day, 50 day and 200 day. The moving average lines are marked, so readers should be able to identify them. Have a look at the current position of each of these averages before you read on.
Prices have cut through the 20 MA, and yesterday also through the 50 MA. The long term trend, as represented by the 200 day average is UP - the average is rising, as also, prices remain well above the average.
The bearish crossover of prices below 50 MA is disturbing since it usually signals the start of an intermediate down trend. There are 2 reasons why we are not calling for a downtrend - First, sometimes the 50 MA acts as support and prices bounce back. Note a similar support in late August. Second, the crossover has come about in a strong support area. Therefore, the breakdown of support will be a clearer signal than this crossover.
How do we know that support is holding? You need a bullish candle! This will be the first sign that some kind of support has emerged in the 5900-5950 area.
What happens if support breaks? A close below 5900 approx will be a sign. Traders should not have any long positions, if they sense a breakdown since the next support comes much lower at 5300 - 5500. Note the gap between 5500 and 5900 - nothing in between!
Reader comments are welcome.