From beginning of May, market has made three attempts at making NEW HIGH. But got rejected as soon as it entered resistance zone. Is this a warning shot? Is market providing us with clues!!! What to expect next?
Not much has changed in below McClellan Index chart:
- Nifty is still above MA(100) and MA(200), however it is converging towards MA(100). Also MA(100) and MA(200) lines are getting closer suggesting lot of zig-zag action in weeks/months ahead
- McClellan Index in bottom portion of the chart appears to be moving horizontally but might soon start dropping further
Look at below Nifty daily chart, we can clearly see a very common pattern known as "Head & Shoulder" pattern, The pattern is identified when we see, three dome like shapes and middle one is higher which appears to be a Head while the Shoulders are almost same height but shorter than head. If the neck line (shown here by dotted line) is broken then it is considered bearish and next support might be around MA(50) line, close to 5860 area OR even at MA(200) line.
On weekly Nifty chart, we can see how market was rejected as soon as it hit the resistance zone.
Most likely scenario:
What does this mean for our Investments?
Market could be in transition phase hence be cautious and stay alert...
- Market may try and find support near MA(50) area but we won't be surprised if it cuts through MA(50) and finds support near MA(200)
- A quick bounce back to 58xx or 59xx area and try to hold it for few days but it will be difficult
- Continue its journey downwards to 5550 area and try to establish support. However, it may not be surprising to see that the market cuts through this support very quickly and takes a deeper plunge
- At this point, market will be in confirmed down trend
What does this mean for our Investments?
- Mutual Funds - Stay put and wait for market to show us its next move. We do not have to time the TOP but just need to know the opportunity window to exit the market, hence it is wise to be alert and start working on your exit strategy.
- Stocks - Unless you have a very convincing pattern, take partial gains and have a strict STOP LIMIT in place.
Market could be in transition phase hence be cautious and stay alert...