Sunday, January 4, 2009

Strong Breakout on Nifty

Hi guys,

After a long time, a trading idea.. based on strong breakout for nifty... on the long side this time.. finally :)

Have a look at the attached pics...

1. First the daily chart....

Formation of an ascending triangle ....

I have marked out the lines of the triangle. If you want to read more on triangles look at this page.. 

Notice how similar the Nifty triangle is too the ascending triangle diagram given on investopedia.

On break of the upper resistance line, we should see a large trending move. So technicals support a large move. 

Monday should see a large upmove with rate cuts, fiscal stimulus part 2, dow rally on friday etc etc..

That means we should see a strong definitive breakout.

'...The most telling part of this pattern is the ascending support line, which gives an indication that sellers are starting to leave the security. After the sellers are knocked out of the market, the buyers can take the price past the resistance level .....' 

Nifty has taken support on this line 4 times.. shows very good support.

2. Now the weekly charts....

I have marked out two parallel channels, the lower one touching all the bottoms since march & the top one parallel to it.. 

See how after Nifty dropped below this bottom line, it tried to get above it 4-5 times, but failed ..thus the support turned to resistance. 

Further, weekly MACD has turned positive last week, RSI & Stochastics all point towards bullish moves..

Now once again, with the strong breakout on Monday, we should see this resistance too get crossed... & enter the parallel
channel once again... This further strengthens the chances of a major rally... The target for this rally should be the top end
of the parallel channel - somewhere around 3800-3900... given that 3800 acted as a support level many times this year, it should act as a tough resistance...

Trading Strategy

Go long on monday on intra day dips if able to get not too high prices... else wait for a dip in the next 2-3 trading sessions..

But, if by any chance, the move tmrw is not able to sustain & the close is negative, then one can go short.

For those skeptical of such a large rally (especially since Oct-Dec results are supposed to be very very bad).. i just want topoint out that mkts are forward looking & not backward looking.. they already priced in this quarter in october itself... its timeto move on.. its now pricing in the recovery in fundamentals with all these rate cuts & stimulus going to make things betterin days to come. If you still dont agree, thats good... cause such rallies can only thrive if the skeptics exist... :)