Where is Nifty headed now?

The sharp rebound aside, despite the destruction on daily and weekly chart patterns, Nifty is trading comfortably above the rising trendline on the monthly chart. It always makes sense to always look with a broader perspective, whenever a rare event occurs (eg: Monday’s crash). As long it sustains above the same, we need to consider any declines as just a correction in bull market.

Aug 28, 2015 05:08 IST IIFL Pritesh Mehta |

Too much has been said about the recent carnage on Dalal Street. On Monday (24th August) main indices crashed by around 6-7%. The Chinese economy slowdown coupled with its Yuan devaluation, the cascading impact on the Indian Rupee, which depreciated by around 5% in the last couple of weeks and fears of upturn in the US rate cycle took a huge toll on the market. Indian currency hit an intra-day low of 66.68/$; levels which were last seen in September 4, 2013. During that period, Nifty index made a low of 5,303 before embarking upon a strong recovery which saw Nifty hitting peak of 9,119 in March 2015.  
 
Back in September 2013, Index had staged a strong pullback after taking support of its 100-WMA (weekly moving average) and in current scenario, Nifty has done something similar. Sharp correction bought the index close to the support of its 100-WMA before bouncing back sharply, which suggest that index has created a short-term bottom.
 
Despite the destruction on daily and weekly chart patterns, Nifty is trading comfortably above the rising trendline on the monthly chart. It always makes sense to always look with a broader perspective, whenever a rare event occurs (eg: Monday’s crash). As long it sustains above the same, we need to consider any declines as just a correction in bull market.
 
Moreover, on the weekly chart, 38.2% retracement of the upmove seen from low of 5,119 to the peak of the index comes around at 7,600, which coincides with the support of 100-WMA. Cluster of supports are seen between 7,500-7,700, which indicate that Nifty is going through a phase of bottoming out.
 
A simple 50% retracement of recent correction comes around 8,100. And if Index is able to sustain above 8,150 for at least two weeks, it will confirm a reversal to the downtrend. 

The author is Senior Technical Analyst at IIFL
 

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