Tuesday, January 6, 2009

Technical Analysis of the Nifty

The Nifty peak was around 6300 levels, in January 2008. The troughs were hit in October and once again on Nov 20 2008, at around 2500 levels. Between the October and November troughs the peak was at around 3150 levels. There’s been a up trend from November 20 onwards. Technical analysts believe that a bear market rally is one in which the successive peak is lower than the previous peak. So the technical view expressed, for instance, by Rajat K Bose is that unless the Nifty closes above the 3150 level at high volumes the current up trend should be viewed as a bear market rally. The other characteristic of a bear market rally is that it is followed by a sharp downtrend, in which the next trough is lower than the previous trough. Since the previous trough was around 2500, if the current uptrend were to break then the next trough is likely to be below 2500.
Technical analysts also measure volumes and market breadth. The Nifty rally all the way till yesterday (Dec 05) was marked by low volumes. Yesterday volumes were higher and the Nifty was up further from the Friday close.
Today’s view from Rajat Bose is that traders need to watch out for the 3045 level. Nifty has resistance at 3045 and if that is breached it could signal the start of an intermediate downtrend, which might possibly take the Nifty below 2500. Similarly it stands to reason that if the Nifty crosses 3150 levels at high volumes that would signal a reversal of the downtrend all the way since January 2008.

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