Sunday, December 20, 2009

Dollar Index Rises, Nifty down

Last week, we had spoken about the Dollar Index rising and its implications on our markets. The markets shed wait in the last 2 trading sessions and the Nifty is now at 4987. So, where do we go from here?

1. The Nifty broke the support line from the November lows. The support at the trend line joining the lows from July comes to around 4860. This is a very crucial support line, breach of which means the rally from March lows may be over.

2. The 50 EMA at 4990 and 20 EMA at 5056 have been breached. The 50 EMA is a very strong support and the markets may bounce up from current support levels. The Markets had bounced from 50 EMA in August.

3. The 61.8% of the rise from 4807 to 5182 comes to around 4950 a key support level.

4. The 5 week low ema which the market had taken support during the Dubai crisis comes to around 4940.

5. The maximum open interest in Puts is at 4900 and in calls is at 5100 and 5200. The next week is a truncated week and volumes would be light.

6. The inflation is running away and the government would have to raise Interest Rates. It would not help much as this is Supply Side inflation not Demand side inflation.

7. The Dollar Index rising would lead to Dollar Carry trade unwinding and also commodities becoming cheaper. Good time to SIP in Gold.

8. The Bollinger band top is at 5181 and bottom is at 4960. The Bands have narrowed so a breakout on either sides would give additional 200 points. This means 4750 or 5380. The index does not stay out of the band too long. So, the markets may bounce in a day or two. If they do not, then indices would decline further.

9. I would go long on break of 5038 on closing basis. Stop loss for shorts would be 5025.

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