Wednesday, July 09, 2008

>Nifty bottom?

Have we hit a short term bottom we will try to find out

Few indications which suggest we have hit short term bottom.

1:-Extreme pessimism

2:-Too much volatility

3:-Individual heavyweights showing good structures

4:-Nifty making higher lows

5:-Option players buying too many PUTS.

6:-Nifty looks to have finished 5 down waves from top

Lets try to discuss about above points.

Near bottoms Invester sentiment seems to be generally negative, Bearish investment advisors should exceed bulls near important market lows.People start talking about LC(lower circuits):)

I believe the odds favor that the ultimate low will be made in a climactic fashion. A climactic day would be a day that the market is down sharply in early trading, This would be followed by a complete reversal in the afternoon, with stocks up sharply on heavy volume.

We saw such trading pattern on 2nd july when most of the stocks dropped sharply but in the afternoon session recovered smartly to close up with huge gains ,Nifty closed well above 5% gains.

I believe the long decline in stocks has ended . We even saw extreme cases where most FnO stocks fell more than 10% in a very short span of time, a short sharp drop in stocks prices. This period of capitulation had pushed investor sentiment to a bearish extreme.

Till 2nd july, the short-sellers have been right. However, when sentiment shifts this much and with this level of conviction, it eventually results in a swing the other way. This creates a situation where any buying can force these traders back into the market to either cover shorts or get reinvested.

Volatility increased considerably during this period nifty moving 4-5% in a single day

Options players had increased their purchase of Put options. Usually, option players pick up their Put buying near market bottom.

Technically too nifty making higher lows after that 2nd july mayhem also nifty held its long term trendline.

Hope I have explained properly what I wanted to say:)

Falls would still be coming but they would all make this rise stronger.


yahoo id:-rish.trader


Indeevar said...

Very nicely explained. So we keep looking for higher bottoms and enter longs on every dip as long as this formation holds.

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