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Wait for a reversal signal – patience pays

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Wait for a reversal signal –  patience pays

The Nifty ended in deep red near its important support level on Wednesday as weak cues from global markets and the depreciating rupee weighed on sentiment.
The Nifty has been moving downward for more than a year. The downtrend reversed in January this year when the index rallied smartly from 4,530 to 5,630 in a span of just two months.
“At current levels, chart patterns looks extremely bearish and one needs to remember that bottoms are formed in such gloomy situations. “However, at this stage there is no such indication of a bottom being formed but, indices remaining in a range for few days at these levels could make case of some early signals of a bottom formation. From a trader’s perspective,  the view is that the stage is set up for a bounce bank if the Nifty sustains above 4,960 levels and the Sensex above 16,400.

Based on long term charts 4750 to 4800 remains very strong support and Nifty is unlikely to fall below this in absence of any further negative news flows.

Bank nifty has seen low of 9000 and momentum traders need to watch 9500 levels very closely as a move above this will be very clear indication of  a positive trend building up. There can be very frenzied squaring of short position seen once Bank Nifty sustains the above mentioned levels. In this depressed period,  systematic trades with a very strict stop loss should only be initiated however, medium to long term investment can be initiated on dips on a regular intervals in small parts. Looking from a long term perspective If it is about risk-reward, I think this zone provides a favourable risk reward ratio.

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Stuck in short range

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STUCK IN SHORT RANGE

There was some upward move seen last week but, such optimism was tempered when it came under renewed selling pressure on Monday. Globally markets were down owing to continued European concerns. While day-to-day fluctuations are reducing investor risk appetite it would be difficult to see the trend change soon. We have been advocating bearish view after the close of Friday and advised traders can short with stop loss of 5300. A sharp decline was seen in momentum stocks like Lovable, Dish TV , Delta corp and VIP inds which is indicating that bulls are also acknowledging the weakness. Markets are currently stuck in a small range and for Nifty future 5100 and 5300 can be considered as short range and between these range bias remains negative. If Nifty manages to break out from this range there could be a very sharp move on either side for minimum 3% to 4%. Based on short term charts averages 5100 will act as strong support and if indices sustain below 17000 and 5100 there could be sharp decline in subsequent days. A renewed buying interest can be expected only once these global concerns trim down otherwise market are likely to become lackluster in coming weeks.

Written by Rakesh Gandhi

November 15, 2011 at 1:32 pm