Approaching resistance?

Nifty and Sensex approaching resistance zone

Most of the investors have been caught napping by current surge in Indian stock markets. While many are still in denial mode, most of them have come to terms with new reality. What they are looking for is an entry point, wondering when can we expect a correction.

As far as charts are concerned, we might already be approaching resistance zone. Interesting nifty and Sensex seem to be presenting different pictures. Nifty is yet to reach its major resistance between 4700 to 5200. But Sensex has resistance very close between 14700 to 15500. Divergence theory anyone?

Coming back to Nifty, It has been in a nicely formed uptrend in daily charts. On the upside, the index has already threatened to breach the upper channel resistance once. Although it withdrew from there, it formed a flag like formation and has broken up from there. The flag indicates a target of 4900. On the downside, we have channel resistance at 4700. This level coincides with a recent past significant top. If that's not is enough, fibo resistance sits at 4818. Final resistance is at 5200. This coupled with an unnaturally steep channel makes one skeptic. Add to that the fact that the channel is diverging, indicating emotional trading. Now, emotions in markets should always make one cautious. Given all these, i would expect some correction in near future. Note the correction maybe a “line” or what is called consolidation. So the outlook does not necessarily turn negative. In any case, nifty has a strong resistance turned support at 3900-4000. I wont be expecting any correction to take it below that level. In fact outlook will turn neutral first and then negative if that support is breached convincingly.

Meanwhile Sensex already threatened to breach the upper channel line though it was sold off from there and could not sustain the surge. First resistance sits at 14900. And then, we can expect significant selling pressure near previous top at 15500. On downside, I would expect 12900-13000 to hold. Breach of that level will again turn the outlook neutral first and then negative.

In a nutshell, we are in strong bull run and looking for corrections to enter the markets is likely to result in a wild goose chase. I would recommend a staged entry- buying gradually at every stage. This will keep one safe from any correction without significantly compromising gains from upsides. But whatever you do, don't go short in a strong bull run. And if you are getting tempted, go listen to the Gambler by Kenny Rogers -

“If you're gonna play the game, boy, ya gotta learn to play it right...
You got to know when to hold em, know when to fold em,
Know when to walk away and know when to run...
You never count your money when youre sittin at the table.
There'll be time enough for countin when the dealins done.”