Wednesday, March 25, 2009

Breakout on Nifty - Buy on pull backs

Nifty Daily Chart with Stochastics and MACD. Price pulls back from triangle resistance line.

As is amply clear from the chart, Nifty pulled back after touching the downward sloping resistance line which is the upper line of the former triangle. We know look to buy near the 100 DMA at 2830-2860, the area from which price broke out on Monday.

Go through the post below. What will become clear to anyone is that there were a number of resistances in the 2800-2850 region - 50 & 100 day moving averages, 0.618 retracement of the earlier downmove, an upward sloping support turned resistance, a falling wedge and also another falling trendline resistance. Despite these numerous support, and despite the market itself being overbought with stochastics well above 85 levels, price broke through the barriers convincingly with a 5% upmove on Monday.

Intraday action as marked on the 5 day chart below with stochastics & rsi remaining oversold throughout the day and price moving up through the session without any major dip suggest major short covering and further strength in the days to come.

In the meantime though price might see a breather and corrective action over the remainder of this week as markets worldwide are overbought, having seen a near 20% rally since the low in early March. Stochastics is about to make a bearish crossover,and price might close inside the bolinger bands today after having spent 2 days above the top line, giving a sell signal, but thats fine. The underlying trend is bullish & would like to create bullish positions on dip. If one has to go bearish it has to be with small trade size and strict stops.

I would look to buy in the 2830-2860 region over the coming few days. 100 dma is at 2827 as of today. If and when price corrects to that level we shall again watch if its able to overtake resistance at the top end of the triangle. If its able to take that out successfully, then we have a free run till the 200 day moving average, yes... all the way upto 3500 :)