Saturday, August 8, 2009

Correction: A Cool-off to Say the Least

Twice Tested, Much Stronger!! -
The Resistence at Nifty 4750.

We have witnessed a strong resistance in Nifty at around 4725. The journey from nifty 3900 to 4700 was as exciting as one could imagine with almost a one-way ride in the upward direction. Nifty 4700 were the levels which were tested during Mid-June 2009 only to form a top for that month. Those levels are back to hound the market in form of stiff resistance to surpass. So, until this crucial zone of 4700-4750 gets taken out on the upside, it would be safe to assume that the Nifty broad range remains 3900 to 4750, a steady 800 point range. A narrow range could be spelled in between 4250 to 4750 range or 4400 to 4750 range, whichever stands the test of time.

Once again Nifty succumbed after testing 4730 during the first week of August 2009. On the downside, many important levels have come and gone. But, as of now, it would be safe to presume that the 'uptrend' is intact and this could just be a correction before next trending move. Markets have reversed from Nifty 3900 to 4700 without a breather. So, as of today, we can conclude that markets are in a short correction mode. Support for Nifty could be sought at 4400 or even 4250 on the lower side. Traders can buy around 4400-4450 with Stop Loss of 4380 with a probable target of 4650-4700 again. However, formally, if there is a tradeable call from my side, I will post it on blog as was done during previous week. Below 4380, another 100 point crack-down on Nifty can't be ruled out.

What could be the Chances of Revival Again?

We can again test 4700 after some bit of consolidation at lower levels. Support lies around 4250-4400, which ever stands the test of time.The broad range continues to be Nifty 3900-4700. Below Nifty 4250, the consolidation and waiting time could be for an extended period & may be even questions could be raised on the existence of current market uptrend if such crucial level is breached on the downside.

Can we again cross 4750? Quite possibly, we could go to 4900-5200 zone before this phase of exuberance come to a halt. Markets have a tendency to top-out when there is excess euphoria in the system and it succeeds in inducing investors to take an entry at higher levels when every thing is looking gung-ho and optimistic.

This is the way markets usually work: on the downside, weak hands are induced to lighten up their positions based on news and rumours of pessimism. This stock gradually moves in the hand of big people; the mentality that gets worked over at this stage is 'Fear'. Similarly, at the exuberant and higher levels, weaker hands take an entry at higher levels, when everything is looking optimistic. At such times, strong hands loosen their positions only to be dumped with weaker section of the system. The factor that works out at this stage is 'Greed' which induces investors to take entry at higher levels.

However, it is too soon to think about such higher levels as Nifty 4900-5200 zone, unless we cross 4750. But, I have a feeling that 4700 will come for yet another testing in near future. Markets will decide for itself whether Nifty 4750 needs to be taken out on the higher side or not, but before that: a Re-test of 4700 is more imminent prior to a big trending move either on the upside on downside. Well, markets could as well prove me wrong.

Money Making with Nifty

During the previous week, on this blog, Two Carry Forward Position were recommended in Nifty. One as a Trend player and one as a Hedge against the same. We cheerfully ended the Net position with smart gains as follows:

Date: July 29, 2009

Nifty Trading (Positional):
Sell in 4500-4550 zone
Stop Loss 4620 (Must have)
Targets 4425-4380

Date: July 30, 2009

Buy in 4520-4540 Range
Stop Loss of 4470
Target 4650-4700

This Nifty view is opposite to the one mentioned above on July 29. One call will get stopped out and other will run at Profits in the direction of next trending move for the markets.

Date: August 03, 2009

SL trigerred in the Nifty Sell call dated July 29 at 4620 & Profits booked in Nifty Buy call dated July 30 at 4700.

Loss: 4620 - 4550 = 70 points
Profit: 4700 - 4540 = 160 points.
Net Profit: 160 - 70 = 90 points.

If you would dealt in Minifty, your profits should be 90 points x 20 units = Rs.1800/-If you would have dealt in Full Nifty, your profits should be 90 points x 50 units = Rs.4500/-

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.


Shalu said...

Dear Viral,
The market correction would have resulted in fresh buying calls for long term....any suggestions from your side? Thanks Shalu

Viral Rajnikant Dholakia said...

Dear Shalu,

Markets have hardly corrected 800 points on Sensex. It is not enough for taking a long Buy call at this juncture.

We would rather opt for long term buying once an intermediate downturn is witnessed and sustained over medium term. The recent correction could be more suited for Traders to take an entry near first strong support levels placed at Nifty 4400.