Hold on chartists

As expected, markets pulled back nicely from the correction that started at 16000 and reversed at 14000. No surprises there. However, the shock was that the Bull Run did not stop at expected levels. It shot beyond the resistance to stage what many are already referring to as a “breakout”.

Technically, the rally should have petered out when Sensex reached the resistance level at upper trend line around 16500 (Nifty 4750). Not surprisingly, the Sensex gave every sign of weakening, including formation of well known “dodgy” pattern on 19th September. However, enormous liquidity was unleashed into the markets due to certain global events. The FII inflows not only pushed the markets beyond the resistance, but also did it more or less convincingly. This has left chartists who were short in a precarious position. The question is- Is it a false move? Or is the breakout real?

The breakout looks very convincing technically. The volume spurt on 20th September confirms the strength of the breakout. Also, Sensex ended the week on a very bullish note on 28th September (The opening and low were same. Check out candle of this day).

However, those who are short need not panic yet. As previously mentioned, the upper trend lines are never sacrosanct in a bull run. It’s lower trend line which actually holds firm. So, no matter how grim the situation looks, the markets are bound to give better exit options from short positions.

To sum it all, expect a quick fall to 16500 levels. Markets are just waiting for a trigger to fall. Next support is at 15900. If the breakout is false, we will see Sensex break this support and touch 14600. On the other hand, if 16500 holds, the markets will bounce back again from that level. The rally that starts from there will take Sensex slowly to next target of 18000 and then to 20500 in medium term. As of now, all we can do is to wait and watch the 16500 closely.