Update for 17th March 2011

Can Indian Stock Markets Become a Safe Haven ?

• Indian stock markets continued with the positive momentum of the previous day on Wednesday. Nifty futures opened slightly higher at 5477 and rallied to 5553 before settling for the day at 5529.
• However, Nifty future has not yet broken out of the trading range between 5350 and 5550.
• Though the general feeling or feedback being obtained from the screen and the charts  is pointing towards  a test of the upper resistances, the increasing uncertainty in Japan and elsewhere in the middle east may affect the positive indications at any time.
• European and U S stocks are plunging at the time of this post. Now the pertinent question is whether the Indian stock markets can become an isolated safe haven in the face of all round turbulence ?
• Even as the options markets ( March series ) are suggesting strong support for Nifty at around the 5400 strike, this author is forced to answer the above question negatively.
• Experience says that no market can remain isolated for long times and sooner or later all markets will be affected in panic situations. Experience also shows that the best stocks and markets also recover fast at the first sign of recoveries. 
• Now here are some quotes from the previous post which might be still relevant :
• "The triggers for the start of a downtrend is also rising in accordance with the Momentum Signal system. Moreover as has been observed  sometimes in the past, markets have a propensity to revisit the panic lows. Therefore, a revisit of the lower supports can not be ruled out even if the market gains on Wednesday on a rebound. "
• "... in case of any breakout happening in the market ,especially towards the lower side, that might force the option writers running for cover. This might aggravate the condition of the market as seen on the last derivative expiry day."  
     

  Nifty Futures - Intra-day Chart

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