Update for 16th March 2011

Reliance Saves the Day, But What Next ?

• In the previous post we had stated that Nifty future may still reverse from the swing highs as the contracts had been trading range bound manner for some times. We showed that the 14 Day ADX index and the open interest data of Nifty march series option contracts were also supporting this scenario.
• Therefore, irrespective of the Japanese tragedy, there was a real  possibility of the Nifty futures reversing from the resistances and retesting the lower boundaries of the old trading channel.
• Nifty futures opened deep in the red at 5390 on Tuesday. After recording a low of 5375 in the morning session, the contracts recovered to a high of 5505 before closing at 5461 on Tuesday.
• The actual credit for the extraordinary resilience shown by the Indian stock market on Tuesday goes to the market heavyweight stock Reliance, which gained 1.73 %.
• Other factors which might have helped the market in containing the losses on Tuesday are the perceived support from the writers of huge Put option positions at the 5400 and 5300 strikes and the absence of huge leveraged weak long positions, which might have been cleaned out in the previous settlement.  
• Now a general comment on huge gap down openings. This trading tip is given only as a general comment and may not become correct at all times. Generally speaking, if a market which has been experiencing positive momentum till the previous day makes a huge gap down opening, it has a better tendency to trade higher for some times or even resume the previous uptrend.
• The above observation is valid in the opposite situations of huge gap up openings happening in weak markets. However, as a matter of abundant caution, it may also be noted that this general observation may fail in cases where the market reverses the earlier trend and starts an opposite trend.
• As Nifty future has again closed right in the middle of the trading range between 5350 and 5550, it can move either way before breaking out either way. 

  Nifty Futures - Intra-day Chart

    Nifty Futures  - Daily Chart 

Update for 15th March 2011

   Will Nifty Futures Breakout and Start Trending !

• In the last post it was indicated that Nifty futures can move either way as the contract was trading in a technically neutral area. 
• Nifty futures rallied strongly on Monday and closed near the day's high at 5556. On the previous two occasions when Nifty contracts traded above the reference level of 5550 recently,  it retreated from the swing highs of 5589 and 5611 respectively. 
• The Nifty contracts have been trading mostly in a sideways manner for some time and therefore, it is equally plausible that the contracts may correct from the previous swing highs.
• Now the important question before traders is whether Nifty futures will be able to surpass the swing highs and  test the 200 DMA at 5680. 
• Even if the contracts are able to move above the 200 DMA, the 5800 area may act as a strong resistance as of now being the upper boundary of the old trading channel. 

  Nifty Futures - Intra-day Chart

   Nifty Futures  - Daily Chart