As Nifty & Sensex chug along, we continue to stay cautious. In our last post we mentioned the importance of breaking the level of 7996 with the right price action, in order for bulls to take charge. Now that we are close to 7940, it becomes important to clarify what we mean by the right price action. Take a look at the chart below:
You see the current rally from levels of around 7700 is within a trend channel. For as long as the prices stay within this trend channel any of these key Fibonacci retracement levels of 7950 (38.2% level), 8024 (50% level) and 8100 (61.8% level) could become a key turning point. Notice that in the last post we mentioned the level of 7998 to be the key and how close it is also to the 8024 level. Which would imply that this narrow range 7998-8024 becomes more important. So a break above this range would be of great significance to bulls. But, if this upward move is a really sustainable move that is likely to take out the more recent highs around 8300 than the clearest confirmation would come from the break away from the trend channel to the upside. But, if the prices don’t do that and instead stay within this trend channel, while continuing to go up, the whole rally would remain highly suspect and part of a corrective move of the recent fall from 8300 to 7700 levels. Monitoring this trend channel for NIFTY should clarify whether the upward momentum is here to stay. At the same time we note how stochastic and momentum oscillators are inching up to key areas, pointing to possibly higher prices, but since most indicators are nothing more than second or third order derivatives of prices, we will always attach more importance to prices and continue to monitor this trend channel very closely.