A 2 week-long correction in Nifty. What next?

Ever since the breakout in Nifty 2 weeks back, it has been pretty much in correction-mode, correcting from 5350 to almost 5168 on 12th Nov, 2011. This is not what a healthy breakout is supposed to look like. 5165 was the resistance (the top level in the sideways trend from mid-August to 24th October, which was broken on 25th October). On the way down this level is now a support (Attendees of “Basics of Technical Analysis” will recall this as a classic example of prior strong resistance turning into strong support).

Although, the short-term uptrend does not look healthy (and a little broken, in fact, especially on a daily chart) after the Friday’s session, the only saving grace was that it closed above 5165 on both the daily and weekly charts (weekly close is always very important for looking at the bigger market picture). Moreover, the overseas markets (Dow, Nasdaq etc) went up above 2% on Fri raising hopes that the markets will rebound on Monday. Which way the markets will go is anyone’s guess, but one thing is clear. Until the overhang of the Euro-zone crisis is over, the market will keep facing hiccups. From our side, we are a little bullish short-term mainly because the strong support of 5165 was maintained on Friday both on daily and weekly charts, but any close below 5165 on a daily chart would change the bias towards the downside. In the long-term, we are of course still in a downtrend until the long-term down-trend line is broken on the upside on a weekly chart.

And what about the recent volume breakouts? We’ll post about them in a followup post with some thoughts on some  stop-loss strategies.