How ironical? Nifty provides a bit of breathing space to the bullish camp right after the breach of the 200-DMA. Leading financial daily, websites such as www.moneycontrol.com and popular TV channels were buzzing with headlines that Nifty breached the all important 200-DMA (day moving average) yesterday. The prior low at 8,269 was also taken out, bearishness all around.
The setting was perfect to stage a turnaround. It is not surprising that Nifty staged a nice recovery today as buying was easy for biggies with almost everyone willing to sell.
I have mentioned this on numerous occasions in twitter too. Ponder over this: How will price fall when everyone is bearish or vice-versa. Price has to take a breather and some guppy food (read as gullible traders/investors) must be trapped to trigger next leg of the trend. Recall what happened when Nifty bounced from 8,269. Everyone talked of new highs and now everyone is talking of fancy downside targets.
Best thing is to stick with the trend and coast along. Let’s take a look at the hourly chart of Nifty Futures. This recovery in the Nifty was always round the corner and the setting today was ideal to orchestrate this. With everyone leaning to the bearish side, slightest hint of recovery will force late-and-weak bears to run for cover and this short-covering process will continue the longer the Nifty rules firm or stops falling by consolidating. Either way, a portion of the bears will bail out, fueling rally.
I have been waiting for this recovery since yesterday morning. The reason is the way the Nifty Futures has fallen from 8,529. Have a look at the above chart. The recent leg of the fall has lacked conviction and to my eye, it resembles the rally that happened from 8,395 to 8,874. So, you have guessed it right, I expect a swift recovery.
Now, am I turning bullish? Definitely not, at least not yet. For me, the Nifty must clear at least 8530 in Nifty Futures (8,505 in spot) before turning bullish. But, there is money to be made in the interim, by going long. Recognize which time frame you are operating and try to participate in the meat of the move in that time frame. Lot of traders get chopped owing to confusion arising out of multiple time frame analysis.
I expect the recovery to continue up to 8,500 as long as the low at 8185 is not breached.The target based on Nifty futures Point & Figure chart works out to 8,410.
If you ask me what happens if 8505 is breached, I must confess that I don’t know. We will have to take one step at a time. Within an overall bearish context there is room to go long and make money. But, I do not know if the index has bottomed out or if we can make new highs. If Nifty has bottomed out and headed to new highs, we have sufficient time and upside room. So there is little need to second-guess. Until there is evidence to that effect, I will work on the premise that the current recovery is a pull back in a downtrend.
Note: I am long Nifty this morning. I also own portfolio of shares from the Nifty universe.