Update for 13th January 2011

     Another Rally As Expected !

In the last post we had indicated that traders may look for counter trend long trades  in the Nifty futures, especially, on declines towards the 5750 area, because of the highly oversold nature of the markets.and a price rejection at the lower levels. This suggested trade alone would have made an intra-day profit of  more than 100 points in the Nifty Futures. On Wednesday morning, Nifty futures opened flat and as expected, traded lower towards the adjusted closing price of the previous day. This probe went as low as 5711 on the back of the lukewarm economic data.   In spite of the relatively bad IIP numbers, markets staged a fine rally from the three month lows, as expected. 

But before examining the charts, here is an update of the short trade initiated in accordance with the Momentum Signal Trading system. Even if all the rules of the system were followed exactly and the trailing stop was setup at 5840, the last trade would have made a profit of 55 points in the Nifty futures. The trade generated a maximum favorable excursion ( the distance to the maximum profitable area  or low after the short trade ) of 196 points in the Nifty futures. Since the support around the 5725 to 5750 area was  known, a trader could have exited with a profit of at least 150 points in the Nifty futures.  The day's market action is seen in the intra-day of the Nifty futures below.

Nifty Futures - Intra-day Chart  

Update for 12th January 2011

    Finally, A Break to the Free Fall ?

After the non stop free fall of the past five days, investors and traders were hoping at least for a break, when the markets opened on Tuesday. Nifty futures opened slightly higher and immediately traded upwards to the 5825 levels. However, trading mainly remained range bound  between 5800 and 5830, till around 2.00 PM. The outer ranges of this trading range were between 5770 and 5840. Trading seemed to be a low key affair till the 2.00 PM mark. The European markets opened at 1.30 PM with gains and were trading steady. But, instead of acting in accordance with the positive cues from the international markets, Nifty futures started to drift slowly towards the lower area of the trading range. However, the drift which started as a normal test of  the lows became a deluge of sudden selling. Nifty futures easily broke through the then day's low of 5770 and also the previous day's low of 5746. The contract even broke the three month low of 5727. It recorded a low of 5700 before any semblance recovery was indicated. A notable feature of Tuesday's trading was the fact that the Two major indices, Nifty and BSE Sensex never broke their respective November lows. The sudden down move reversed from the 5700 and 19000 levels of Nifty and Sensex respectively. The recovery from these levels were also as dramatic as the free fall. The free fall of 120 points and an equivalent recovery took just one and a half hours. The close was at 5808.  Before dealing with the next possible outcomes of this swing, let's check the charts.

 Nifty Futures - Intra-day Chart