Tuesday, August 11, 2009

Sensitive Index



There’s every reason(s) (see below) to believe that the rally which started from 8000 in mid march may have formed a temporary top there setting the stage for a retracement anywhere between 38% and 50% of the entire rally.

• Divergence in the MACD (i.e. New high in price is not confirmed by a new high in the momentum indicator)- connotes bearishness
• Divergence in RSI
• Price unable to break above the long term rising trend-line
• 16100 is exactly the 61.8% retracement from 8000 low to 22000 peak

A classic confirmation of this intermediate top has been the occurrence of the reversal bar (highlighted in the chart below). Generally after the formation of reversal bars, there tends to be a move up before a larger decline .So from the current levels of 15100, we could see a move back towards 15500-15600 offering opportunities for partial booking of profits near term for entry at lower levels later





Ideally in this correction price will seek to fill the gap seen in the chart –lower end of 12000 or below.

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