A lot of people have a wrong understanding of the science and art of Technical Analysis.
Technical analysis is not a tool for prediction, like what astrologers attempt to do. TA takes help from historical data and shows what are the possibilities for the future. There are those who just follow the trend and and prefer to get stopped out, or there are some who pay heed to the various possibilities and take action in 'anticipation'. The former use TA only as a science and the latter understand the science behind TA and use their mental creativity as an 'art.
Hence, I always maintain that TA is a science and also an art!
It all depends on perception. It was this perception that did not allow any shorts till 4830 was being held before the budget, and the result is a 6% rally in Nifty in 4 days.
However, now, there are some roadblocks ahead. Although TA as a science says to be long, TA as an art suggests caution.
A glance at the daily chart shows a striking similarity between the chart when Nifty was 5310 and now. What happened after 5310 is known to all - whether the same will get repeated is something no one wants to even think of at this stage. The post budget rally has brought in a sense of euphoria and the market is HOT now. The bears are known to strike when the market is HOT.Is all really well??
If the similarity between the first week of January and now holds true, we might have already seen the short term top, or are very close to one.
The hourly chart also shows a lower top in Stochastics and also a sell on MACD, and hints that Nifty is headed down.
If Nifty cannot cross and close above 5115 - 5135 on Monday, it is safe to say, we are headed downwards.
Downwards to where?? Everyone knows the huge support at 5050 - 5070, and if the bears cannot break this intra day, they will try and do it overnight.
Below that, the level 4960 -70 is also a critical level, and if Nifty holds this level, it is safe to take longs again, with a stop of 4930 and stay long for this month!
An interesting combination to go long will be Nifty near 4970 and the leader near 980 once again.
It might sound funny that I am cautioning against fresh longs and advising possible shorts - especially when the US market squeezed the shorts on Friday, and FTSE of UK made a new 2010 high.
But yes - the risk: reward ratio is certainly not in favour of fresh longs at this red hot stage !
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ANNOUNCEMENT - A full day course has been planned - on the Science of Technical Analysis and the Art of trading stocks and Nifty futures - in Pune; The date is Saturday, 3rd April.
Those interested in more details can get in touch on the yahoo id timethemarket@ymail.com
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