Tuesday, November 18, 2008

Nifty returns for a 'Test' of earlier lows

The Nifty fell again (this seems to become a daily routine) to close below 2700. the Index has returned to test the lows made three weeks earlier.

A test is a determination of strength - in this case - bearish strength. If the bears are strong, the 2525 closing levels will break and the test will fail. If the bears are weak, the 2525 close will hold, the test of strength will succeed, telling us that that the 2525 close may well become an intermediate support.

We have to wait patiently for this process of testing to be complete. Markets do not move on demand. The Nifty closed at 2683, so a rally is possible before another decline. Also, today's lows may by themselves represent a test. the index does not have to go and touch the same levels exactly.

A close above 3148 will test us that the Nifty has undergone a successful test and may be ready for higher levels. As time goes by these levels will change but that has not happened yet.

How should the trader approach the market now ?
Go with the flow, which is down. Avoid selling after many down days. (For example we already have 5 down days). Wait for a rally to sell. if you are uncomfortable with selling, then stay away. Buying should be done mainly for day trades.

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