As expected and mentioned last week Nifty corrected till
5700/5670 placing a low of 5683 for the week and exactly bounced from the trend
line support of 5690. I also suggested to add positions on the correction I
hope NIFTY traders minted money in longs as well.
Sensex broke down below the ‘falling wedge’ pattern and closed below the
200 day EMA for a day, before Friday’s upward bounce on short covering pulled
the index back towards the ‘wedge’. Such pullbacks are generally selling
opportunities, so it won’t be surprising if the down move resumes next week.
However a small bullish ‘island reversal’ pattern is seen on the charts.
But the pattern will get confirmed only if the Sensex resumes its up move.
Keep a close watch on the trend line which is seen at 18660 mark. Any
drop below may lead to further correction.
Conclusion: The index was in oversold state and Nifty exactly took
support from the trend line support at 5690 and bounced back forming a bullish
reversal pattern known as ‘Morning Star’. Nevertheless 70% of the up move was
due to short covering. Considering the trend line support of 5690 in Nifty fut
plus the short covering with the bullish pattern of ‘Morning Star’ I expect the
market to rise further till 5950. Nevertheless this bounce back should be
treated as a Dead cat bounce.
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