Last week my diagnosis was that the Nifty was not too healthy. The Nifty however continued to climb the wall of worry and gained 150 points over last week after briefly touching the 5000 level. So, is the Nifty robust once again ?
Weekly Charts
Weekly Chart 2
All oscillators are rising but have been in negative divergence since May 2009 when they all hit highs in overbought terriotry and have since then been unable to reach those highs, whereas the Nifty has continued to make new highs
Moving Averages
The short term and long term moving averages are in bullish alignment since June 2009 and consequently the disparity between price and the moving averages is increasing which increases the possibility of a contraction.
Sentiment Indicators
Market breadth was positive for the week.
Put call ratio which was at 1.66 last week increased to 1.73 this week supporting the theory of "climbing the wall of worry".
Bullish Price Pattern
Inverse head and shoulders breakout has been maintained for the second week.Therefore, the neckline , shown in pink in Chart 1 , becomes strong support. The level for this week is at 4707 .
Bearish Price Pattern
Rising Wedge forming since 26th June 2009 shown in Chart 2 in red dash line. This will be invalidated if Nifty breaks out above the uppertrendline which offers resistance for the week at 5150. Support at the lower trendline is at 4800.
My View
Last week I suggested booking out of remaining longs so that the elusive correction would not eat into the profits made . I suggest the same once again of continuing to book profits as and when one is in profits. The Nifty has been moving in an upward moving channel since March 2009 lows, shown in Chart 2 , and is now at the lower end of it . Unless the Nifty breaks down from this channel ,the upmove will continue.Support from this channel is at 4670 for the week. Bears should wait for a decisive break of this level to get active.
Meanwhile, the Bulls rule !
Happy Trading !!
Lakshmi Ramachandran
www.vipreetsafetrading.com
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