March 7, 2014

Weekend update

NIFTY gains 2% today and 4.5% on weekly basis. A highest closing was also achieved (lifetime high/ 52 week high etc).

Advance decline was flat (not a good sign) so while the nifty rallied, other stocks sold off. Infact, highest gains were in banks and nifty stocks while midcaps were practically flat.

If one assumes the region between 5960 and 6360 to be a rectangle, then breakout implication calls for a rally to 6360+(6360-5960)=6760.

Weekly charts:

I had been drawing an expanding triangle for quite some time. Basically what happens here is markets make a new high and then start correcting. A new low is made followed by another rally. And all this happens within a triangle which has the appearance of a megaphone.

In line with this behaviour, markets closed at a new high and at the upper extreme of the expanding triangle. This means we should start seeing a correction immediately from next week.

However this seems unlikely as of now... the reason is that the triangle has already had 3 contact points each on the upper and lower trendline. It is not normal for the triangle to persist for a much longer time. Also, if a correction were to happen, 5970 should have been broken decisively by now.

This means that the expanding triangle is close to being rejected... At best, we will wait for one more week as full retracement of this week's gains is required.

To put this the other way around, holding this week's low will be bullish for next few weeks.

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