Nifty crashed substantially from close to the 11000 level mentioned in the last report. Our primary case has been that the rise leading up to 11000 was part of an A-B-C (possibly flat) correction. However the extra ‘legs’ that developed left other interpretations open. Chart Below:
The subsequent decline had been swift. However the market rallied from an important level (10350) on back of bearish news events (viz RBI governor resignation & state election results). Historically lows made on back of extreme bearish news events turn out to be important lows that mark beginning of a new trend. However, this should be backed by a bullish price action.
The price action so far although swift can still be a part of a correction. In fact this has been the theme of the markets for few months now where every price action (bearish or bullish) has been extreme, thus bringing enough bulls or bears into the market before reversing direction abruptly.
Even as part of a correction the market can extend it’s rally to 11300 before reversing. Keeping this in mind I would be extremely careful in turning too bullish unless I see markets start making new all time highs or a specific price pattern emerges. Current market situation is better suited for short term trading where losses can be cut quickly and profits be booked by trailing stops based on price action.
A break of 10950 should see a move towards 11300. Although based on short term charts I expect a pull back to at least around 10750 (& may be 10620-630) before the market attempts any move towards 11300. A break of 10845 level may signal start of a pull back.
Important support levels include 10750/10630.
