Another trading day, full of action and anxiety. We almost gave up all the gains we had made yesterday. Nifty couldn’t take the burden of weak overnight global cues and the rising Crude. The Asian markets also were insipid. With a negative DOW we saw an immediate sell off (panic) in the morning. If you take a look at the 5 minute intraday chart above you will notice those first few red candles heading down. Nifty traded volatile after that and the first clear buy signal came in mid noon. We can see that though the price headed down the MACD histogram traced a bullish Divergence. The MACD lines stayed flat for most part of the day and finally hinted at a breakout with positive crossover. This was confirmed by a breakout in the price (breaking of the trend line and 20 period EMA). Later we made a double top towards the close and ended rather conservatively.
Taking a look at the daily chart below, we can see for now we have a significant low (pivot) at 3848. The only solace, the bulls have is that, for now the 3870 level is saved. Technically all the factors suggest a pullback (caveat; we deal here with probabilities and not certainties). The ADX is very high at 50 it needs to come to lower levels maybe around 30/35. Second there should be some reversion of the –DI towards +DI. Also another important tenet for the followers of Moving Averages. The price is overextended from the nearest significant EMA (20 period) and need to revert to it. On the face value of the chart it does look like a swing trade in the offing. I reiterate that the path of nifty still remains 4050/4160/4215/4250 and most probably 4300/4325 where it is likely to meet the falling 20 period EMA.
If Nifty trading is too volatile for your taste then look for stocks where the RS is strong vis a vis the index. I have RPL and ONGC on my radar.
"Give a man a fish and he will eat for the day. Teach a man to fish and he will eat for a lifetime."
Chinese Proverb
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