Monday, March 10, 2014

Nifty - Technical Update

  1. This monthly chart of Nifty suggests a breakout price wise. But we all have seen our fair share of false and real breakouts. Which one is this?
  2. Well for starters we have not seen RSI cross the bear market resistance zone (65-70) yet, last time we were there in early 2010 we got resisted.
  3. So does that mean this is a false breakout, no not at all, we just need to observe what RSI does when it gets to that zone, which it so far hasn't.
  4. Last time we had a persistent up move, late 2003 to early 2008, the RSI shot from lower levels above the 65-70 zone, in on straight line, announcing the onset of a major trend, nothing of that sort so far. But lets just keep our eyes open. 
  5. Lets drill down to weekly chart, and try to fathom the market there.

  1. Same story all over again, we have been in the Bear Resistance (65-70) and Bull Support (35-30) zone for almost 3 years.
  2. One thing is for sure, though the Nifty has been volatile, it has been range bound too, so nothing wrong in anticipating a range extension.
  3. We are fast approaching the 65-70 zone on RSI, and it would be very interesting to see what Nifty does there, as it will be the deciding factor for trend in the near future.
  4. Though the trend has been laboring up, RSI has not yet crossed the Bear Resistance zone even once in last 3 years. So no indication of a big breakout yet, that does not mean we cannot get one, but the indicator has kept mum on that front so far.
  5. What does then the daily chart has to offer.

  1. Here is where things are getting interesting. First we have a clean breakout price wise and also RSI has crossed above the Bear Resistance zone, may be not in a straight line, but with sufficient confidence.
  2. Will this be the sign which everyone is waiting for, the signal of a persistent up move coming. Well if it is, then the enthusiasm should spill over to the weekly and monthly time frames, soon, unless that happens this spurt is likely to fizzle out.
  3. But should we see the weekly and monthly time frames joining in, then we most certainly will see a persistent up move, in coming days, weeks, months, years even.
  4. So what we need now, after the initial work has been put in place, is a follow through, that's what is going to decide the fate in the medium to near term for the markets. Until such time one is better served by being cautious.
  5. The early bulls, trend followers, system traders most likely have turned bullish early, for this last up leg, and must be having a nice cushion of profit to lean against. But fresh traders, investors who are looking at a possible breakout, it would be better to wait for a follow through, and then enter on small pull backs.
  6. Those chasing the trend during such times more often than not end up becoming the fuel for sharp reversals.
So have patience, markets are going to be there for a long long time, don't rush it, wait for the right opportunity, and then pull the trigger.
Also this post does not mean that I am bearish on markets, or bullish for that matter. I am a trader and can contribute only about 2 cents when discussing the long term picture. This post is just a peculiar observation, which I have put into words and pictures for people to get some perspective on markets and for experts to give their suggestions and critique.