Wait for more signals before turning positive

Synopsis

At the caller debased of 12514 points, the Sensex has tested the 12800-12000-pts enactment portion and has since past attempted a corrective rally.

At the caller debased of 12514 points, the Sensex has tested the 12800-12000-pts enactment portion and has since past attempted a corrective rally. During the past inclination phases successful the Sensex, a monthly moving mean convergence/divergence (MACD) cross-down beneath its trigger line, have, typically, led to a important worth erosion, with the corrective signifier lasting, astatine least, for a year.
Therefore, contiguous rallies would beryllium interpreted arsenic corrective successful quality until the medium-term method parameters crook positive. The caller upmove successful the Sensex since the debased of 12514 pts has been precise sharp. The upside spread of July 23, 2008 had created a bullish ���Island Reversal Gap��� connected the regular charts betwixt 14510 pts and 14519 pts.

Normally, the implications of this connected the medium-term outlook would beryllium precise positive, particularly since the ���Island��� comprised of 22 trading sessions. When a banal indicates an uptrend, trades supra the spread which occurs, past gaps backmost down and trades beneath the archetypal price, an land reversal has occurred.

However, the Sensex has since tally into a beardown absorption portion betwixt 15026 pts and 15390 pts. The monthly mid-point of June 2008 is astatine 15026 pts. The 50% retracement level of the autumn from the May 2008 highest (17735 pts) is astatine 15124 pts. The affirmative implications of the bullish ���Island Reversal Gap��� would frankincense get negated if the Sensex has a regular adjacent beneath 14104 pts (the adjacent connected July 22, 2008). The Sensex is past expected to person an archetypal downside of 13513 pts, the 61.8% Fibonacci retracement level of the caller emergence from 12514 pts to 15130 pts.

If the bearish ���Island reversal gap��� of 14484-14568 pts is instantly filled and the Sensex manages to decisively overhaul the resistances betwixt 15130 pts and 15390 pts, the ongoing upmove would continue. The Sensex whitethorn past trial higher levels betwixt 16618 pts and 16860 pts.

The 78.6% Fibonacci retracement level of the autumn from the May 2008 highest is astatine 16618 pts portion 16860 pts is the 50% retracement level of the full autumn from the January 2008 peak. Hence, 1 would await further confirmation earlier turning affirmative connected the medium-term outlook.

(The writer is VP of method probe astatine Darashaw)

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