Revisiting Nifty Positional Trading Opportunity - 28 Jun 2009

Recently I had advocated or rather identified a situation where I believed there was an opportunity for initiating shorts in Nifty futures for positional traders. The analysis can be seen here and here.

Since then, the market had once broken down below 4200 but found support at 4140. The price action for the last week seems to indicate that nifty has already found a local bottom.

This is the context I would like to reexamine using the same charts that I had used in the previous ones.

Lets look at the daily nifty chart. ( Click on the chart to get a larger view.)



As we can see, the closing price at the end of the week has moved inside the channel between 20 WMA High and Low following the recent upside momentum.

However, the fact that the upper line of the channel - currently at 4452 has not been pierced suggests that there will be a lot of resistance around 4452.


In other words, the possibility - or even a 30-50% probability - exits that Nifty may resume its recent correction.





This case for shorting becomes slightly more persuasive, if we look at the weekly picture next.


In our last analysis, we drew attention to the slow stochastic in the weekly picture.

However, now notice that the slow stochastic is finally coming out of the overbought region after several months there.


This typically results in a sharp sell off and may generate an opportunity for taking long positions at that point for those who might have missed entering the rally earlier.

Does this mean we should short right away? ABSOLUTELY NOT. First of all what is the hurry? Secondly, we must not dismiss the fact that the market did find support at 4140, and in an uptrend right now. The prudent thing would be to watch if the resistance at 4452 or somewhere near - meaning in 4452 to 4700 region - and to short only if that resistance holds. Conservative trader may even wait for 4200/4100 to be broken before shorting.

Summary: Right now the uptrend seems to have resumed. Therefore, no point in shorting. However, the case for shorting may re-emerge if the uptrend reverses at 4452-4700 - we need to wait for price action to confirm the shorting scenario at that point.

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.