Nifty Trading - The Consensus View on Monday Morning - 20 July 2009

A quick reading of most of the financial blogs indicates that the consensus view is that the market has formed a low around 3900 and has resumed its uptrend now.

What do the charts say?

The charts say that what was lost in the week of July 6 has been regained in the very next week of July 13. We are back to the state we were in before the budget. The chart also says short term uptrend will be tested at the resistance of 4500 and then at 4700. Presumably, these are the chart patterns that have generated the consensus view mentioned above.

My own thoughts are that yes, the short term trend as measured over one week is up, as measured against 2 weeks is flat, against 6 weeks is probably down and as measured against 13 weeks ( 4 months ) is again up. Which probably means that the market is fighting to keep the uptrend intact and we should give the up trend the benefit of doubt; therefore, we should trade with a positive bias.

BUT and this is a BIG BUT, because the market is fighting, there will be bloodletting even if the eventual up trend resumes. In other words it will not be easy to pick the dips on where to buy, if you are planning to buy on dips. My view is that only way out is that you must have predetermined technical criteria and stop loss to enter the market - step aside if the market proves you wrong and enjoy the ride if you get it right. AND do not overtrade.

Also, have a lot of patience - do not chase the market in either direction. Remember that before you count your potential profit pay attention to protecting your capital.

OK, after all these generalities a specific contrarian thought and suggestion. What is the probability that the market will retest 3900 before the end of month of August? My pick is about 50-50. In which case, I want to protect my investment assets. One way to do this is to buy one or two August Nifty puts. Please note that this is not trading in options but purely a measure to buy insurance against a possible unanticipated move towards 3900.

Good luck and always keep in mind that you can count on the market springing surprises and leaving a lot of blood on the street.

If you have any comments please write to me at stockmarket.methods.in.madness@gmail.com

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Disclaimer: The above analysis is just that - my analysis. If you choose to trade on the basis of this analysis, you will be solely responsible for the outcome of the trade - profit or loss. Please keep in mind that trading and in particular day trading is not for the novice and there is significant risk of loss of capital in trading.