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.”

Market intelligence: Best exit poll

Prologue: Most of this post contents no specific market analysis, only general discussion. If you are looking for market specific view,skip to last paragraph.

Let me admit it at the outset. I had no intention of boring you with a post on a beautiful Sunday morning. Actually, my head is still hurting- after effects of a Saturday night blast and endless sessions of Age Of Empires finished of with selecting and watching the worst movie on TV (Ghatak- Destroyer)! So i had comfily settled with a huge mug of coffee and newspaper. “Gyaan givers should now go into hiding and hang up their brains.”, Says Shobha de. Please go ahead, i say and start my lappy for some soothing music. But before i could have settled for Nusrat fateh ali khan, one of friends buzzes me on gtalk and in all her innocence asks “Aapko election se pahle hi kaise pata chal gaya tha stock market will go up”. So here i am explaining.

First of all i am no fortune teller. And i take too little interest in politics to bother about who is going to win elections even if i was one. I think India will do well despite its politicians not because of them. So i always discount the fact that politicians will do everything in their capacity to take us back to stone age.

However, i might have guessed the election results correctly if i had bothered to make a guess. Thats because i analyse the best exit poll ever designed- Price action in market. Now, in a exit poll, people may lie. They can't lie in market. While their analysis may be incorrect there is no doubt about their sincerity. When they buy or sell something they are essentially honest because its their money. So that gives first advantage to chartists. Their are no lies. No hidden agenda. Genuine analysis of market participants goes into the price. When they buy, price goes up and when they sell price goes down. Why not watch this movement instead of listening to senseless gyaan givers.

Second advantage comes from the the fact that price action reflects views of ALL market participants and ONLY market participants. When majority decides that a share at 1000 rs is cheap buy, the price goes up. The price action is determined by all participants and none of the outsiders. So when i see price of this share going up i have an honest exit poll about the price of the share. Again lying is not possible because if someone tries to sell this share, he will be wiped out of being a market participant.

No surprise then that even before elections i said- BUY. Whats even more fun is that even if CPM would have won the election with 100% majority, we couldnt have gone wrong. Essentially the elections were irrelevant as far as market movement is concerned. The fact remains that price action shows buying interest in market and as long as this interest is there we need not bother ourselves with silly things like elections. Of course we can always enjoy all the crap by shobha de on a Sunday morning smiling all the way through the article!

Market notes: In my support for freewares, i have finally managed to do away with microsoft office in favour of open office. The unfortunate fallout has been that i don't yet know how to format the price data for use in my charting software. Thats why i am not able to post any charts here. However, Since my last post, market has shown considerable strength. See the hammer in quarterly charts for example. Its better formed than what you will find in technical analysis textbooks! Add to that the fact that sensex has already breached upper trendline of the downward channel. So i would suggest if you haven't bought yet, go ahead and buy. Don't buy because markets will go up tomorrow. Buy because 5 years down the road you will be proudly able to boast to everyone that you bought when sensex was at 12000!

Guess that's long enough. So i sign off. Keep investing wisely earn good returns and always remember:
“Jab bhi chahega chin lega wo... sab usika hai aapka kya hai”

(Aalok Shrivastav, in Jagjit singh's Inteha)