Sunday, August 8, 2010

Big Move coming up

The past few weeks has seen a range-bound action. The Market has been unable to break out or break down. Such Ranged moves occur typically before a huge breakout or a breakdown. Lets look at a few technical and fundamental factors.

1. The Bollinger Bands have contracted and the range is 5360-5478. Breach of either these 2 levels will lead to a big move either ways.

2. There is huge Open Interest at Puts of Strike prices 5400 and below. In the past few months this has meant that these strike prices have served as floor to the market. Conversely, if there is a fall, the this heavy OI would serve as a trigger for a bigger slide. All this suggests that August is a make or break month. If we move up from here, new all time highs, else a substantial correction.

3. The Average True Range (ATR) has contracted to about 59 for a period of 20 days. This further signifies a big move. Last time in 2007, it triggered a massive rally.

4. The 50 ema at 5320 and 20 ema at 5400 are key levels to watch out for. In addition 5350 is a key level, since it has served as a low for past 4 weeks.

5. The Gann chart shows we are at a long term resistance at 5460. Breach of this convincingly and off we go to new highs.

6. Fundamentally, the results are in, the monsoon is on track. There are no fresh upward triggers left. Downward too, it will take some big global event rather than domestic event to trigger a slide. By big global event, I mean a war, a big corporation going bankrupt, something huge. There seem to be no clouds on the horizon, but it may well be the lull before the storm.

Strategy would be to wait and watch. Watch 5500 or 5350 to break. To be cautious 5400 put at 60 or 5300 put at 33 may not be a bad hedge for the portfolio. Treat it as insurance amount.

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