I am in still learning so please ignore and mistakes and feel free to debate against my views. Also the views expressed are my own and it may be debatable. Just felt like sharing it. kthakker0 is doing a very nice job with his levels.
According to me, the BULL rally that we saw taking the NF to 5460 something is still not over and will be uploading some charts supporting my theory. Although i do believe that this BULL rally should be approched with real caution and right moneymanagement(tight stop losses/hedging in options for risk control).
I say with caution because the undelying stocks are at the level which was seen when the Nifty was around 4800. The Bank Nifty too is at the similar levels and that has been the case for some past trading days. Also we need to take care of our positions as there are some heavy fundamentals on friday and saturday. There are Draghi's and Bernanke's speeches over the mentioned days and India's GDP figures are due tomorrow. Also there is gonna be some reforms announced by the Finance Ministry over the couple of weeks and then there is RBI policy meet on the 17th of the coming month.
Now there is little that is affecting the market fundamentally. I may be missing some fundamentals if there are any that are affecting the market. But technically there are reasons seen in the charts as to why the markets fell in the last week erasing all the gains of August. Along with technicals, it was the FII inflows and global liquidity that supported the Nifty.
I am gonna discuss some weekly and daily charts below for more insight.
Weekly Chart :
http://i.imgur.com/eOymS.png
Do inform me if you cannot see the image.
As you can see here, this week's low(today's low) took support from the uptrendline. The last stick is this week's price bar. We do have one more day, tomorrow, to finish the stick. Technically, we know how trendlines can work as support and resistances.
Daily Chart :
http://i.imgur.com/yWPsh.png
In the daily chart, you can see the first trendline starting from 4750 level. One of the days(12.7.2012 to be precise), the market opened below that uptrendline. And we all know that technically if the prices go over the other side of the trendline, we have to proceed with caution as its the first signal of trend reversal. So thus markets came crashing down from 5360 levels to somewhere below 5050 levels(26.7.2012). From there the markets again went forward and i drew another trendline from that new low level.
What happened on 24.8.2012 was the repeat of the previous pattern where markets opened below its new trendline and then had to come down and it did (technically).
But we also know that with the slope of the trendline, the angle of the trendline is also important. This time when the markets fell from 5460 levels, it fell very steeply and quickly and today made a low of something around 5250, i.e., almost 200 points. Technically speaking, the price breaking out of a steep trendline is better than other 45 degree or more angled trendlines and today it has closed just above that trendline which is a poisitive sign for BULLS and caution for BEARS.
Moreover its near the support of the third trendline as you can see..
If you look at the indicators too, then you can see how an uptick is made in Stochastics from the oversold level and the same way an uptick is made in RSI which is about to cross the level of 50.
Although for me, the trendlines are more important than the exact indicators in this scenario.
Daily Chart With Fibo :
http://i.imgur.com/6B83Y.png
In this chart i have drawn two fibonacci levels.
YELLOW LEVELS are drawn by retracing 5600 level to the low 4750 level.
RED LEVELS are drawn from the low of 5050 level to the recent 5460 high.
As you can see how the prices have retraced to the fib levels all the time and have taken support of them, similarly, this time too both the fib lines are at the same point and it touched the support of both the fib levels.
Because of the above reasons, i do believe that markets are likely to make a final rally on the upside breaking the high of 5460 something to make a new high before completely changing the trend. Although anything can happen in the coming days and as a technical analyst we never are meant to forecast but just to work according to the scenario.
