Wednesday, August 8, 2012

Nifty closing below 5350 will indicate short term bearishness...

Bottom Line: Nifty made a high of 5350 exactly near the strong resistance level. It is crucial to see how prices react from here!

Nifty Daily chart: 

Nifty 60 mins chart:

 Wave Analysis:

We mentioned in previous update, “In short, bias is positive given the sustainability of the gap yesterday. However, the up move can be limited to 5340. Even if this is the start of next leg up there are cluster of resistance levels coming in that region and prices will have to consolidate below that level before it can break above it. It will be vital to see how prices react from the resistance zone of 5310 – 5340 for the trend ahead.”

As expected prices had a follow-up rally yesterday and made a high of 5350. However during final trading hour prices failed to close above this level and closed at 5337. As we have mentioned before 5350 is a strong resistance level. Following are the reasons why we think it is strong resistance: this level is the previous pivot top where wave i ended, the resistance of Bollinger Bands® as shown on daily chart, strong channel resistance as shown on 60 mins chart, second pattern (a)-(b)-(c) is equal to first corrective pattern (a)-(b)-(c) at 5340, RSI is in over-bought region.

All the above mentioned reasons make us think that 5350 will not be taken out on upside atleast for few days and prices can move down towards 5200. However we are now lying dangerously close to this level and if prices manage to gap up and close above this level of 5350 then we will be forced to adopt the stand that the next leg up has probably started.

From trading perspective the current market continues to exhibit a challenging environment for both sides of players. Preserving capital should be the aim during such market structure and patience shall be rewarded once a clear wave structure emerges.

For now if 5350 is protected on upside we expect a move down towards 5200. A close above 5350 will indicate that the next leg up has started. 

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