Bottom Line: Nifty gave a strong move up and broke above crucial resistance levels. This confirms the pattern as Ending Diagonal!
Nifty Daily chart:
Nifty 60 mins chart:
Nifty had a strong move up on last day of the week. Prices opened gap up above 5200 levels and rallied throughout the day. We mentioned in our previous update, Prices usually rise violently when they break out of Ending diagonal pattern and so maintaining stop of 5250 for existing short positions is extremely important. In short, a clear trend shall emerge very soon within a day or 2 in either of the directions…”
We can see that the rally has been violent and fast. Also the Advance / Decline ratio has been very much in favor of Advancing stocks. This type of behavior is usually seen in case of strong breakouts.
When the correction started on 2nd Feb 2012 from 5630, we mentioned that the trading environment will be difficult and challenging. Market has vindicated that stand. Impulse waves are very easy to identify and trade and corrections are equally difficult. Most of the people lose what they earn during impulse waves in these types of corrections. Money management and less leverage is the key to maintain the profits earned previously.
March has been the most challenging month since the start of 2012 from trading perspective. There was no clear trend and direction. Markets exhibited high intraday volatility but making very little progress in either direction. On 1st March Nifty was 5340 and on last day of the month it closed at 5295. This simply shows the entire month made almost no net movement in either direction despite being many events and scams being unearthed.
Also an important thing to observe is when on bad news market fails to move down it indicates inherent strength. Indian markets have been able to absorb all the negatives in March and has finally closed marginally down.
For now, the bias is firmly positive and we might have completed the entire wave B down at the low of 5136. Also the rally on Friday retraced the e leg of diagonal faster than it took to form thereby confirming that the trend is now positive from short to medium term.
From medium term perspective, we might have just started wave C on the upside and this will take us above the end of Wave A which is 5630 at minimum. The next probably target comes to around 5880.
It is too soon to say if next leg up has actually started and follow up rally this week is important to conclude that.
In short, as long as Nifty is above 5200 the trend is now firmly up and we can reach near 5490 over short term. Any move below 5200 will indicate the complex correction is ongoing but the latter looks a lower probable scenario as of now!