Brandon Wendell, CMT
Brandon Wendell
With the Sensex breaking 20000 and the Nifty making significant highs, many investors are wondering if the markets will be able to take out the previous highs. Investors are eagerly awaiting the budget to see if the markets will indeed continue their bullish run after the recent basing.
The best thing we can do as traders is to look to the charts for the actual clues to the market direction. Looking first to the Nifty, we can see that price has been trading right into a supply zone. With the slow entry into that zone, you would expect that if we do drop from the zone, it would only be a correction and not a trend reversal. A healthy correction to the 5650 demand is likely and also confirmed by negative divergence on the RSI. As long as we do not have the RSI drop below 40 when we correct, we should see new highs afterward. This was confirmation of bullish trend continuing as the corrections indicated in June, July, Sept, and Nov. 2012.
The Sensex is also into supply with a slow approach. I would have expected a sharp declining only if we approached the supply quickly. As of now, I am only seeing a pullback likely to the 18500 levels.
Those of you who have been in my Professional Trader class or in the Extended Learning Track course know that I like to look at the sectors that are fueling the markets in order to determine whether the markets are likely to continue their trends. I looked back on the equity index charts to see where the current bullish move began. I started my study from the June 4th 2012 lows. When I compare the sectors from the start of the bullish run, I see that the move was one that was participated in by all of the sectors and was healthy. The strongest sector was the media.
As the equity markets were nearing the recent supply levels, all of the sectors were moving lower except for FMCG. This shows nervousness in investor sentiment as they shift funds into safer sectors. If we do not see a large drop in cyclical stock investments (autos, IT, durables etc) then we should only see a pullback in the indexes.
Intraday traders should look at profiting from the short side of the market as the daily charts will be leaning toward short-term downtrends. But once those demand zones are reached, look for the long opportunities to test the prior highs.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD weakens to near 1.1900 as traders eye US data
EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.
GBP/USD stays in the red below 1.3700 on renewed USD demand
GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.
USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Editors’ Picks
EUR/USD weakens to near 1.1900 as traders eye US data
EUR/USD eases to near 1.1900 in Tuesday's European trading hours, snapping the two-day winning streak. Markets turn cautious, lifting the haven demand for the US Dollar ahead of the release of key US economic data, including Retail Sales and ADP Employment Change 4-week average.
GBP/USD stays in the red below 1.3700 on renewed USD demand
GBP/USD trades on a weaker note below 1.3700 in the European session on Tuesday. The pair faces challenges due to renewed US Dollar demand, UK political risks and rising expectations of a March Bank of England rate cut. The immediate focus is now on the US Retail Sales data.
Gold sticks to modest losses above $5,000 ahead of US data
Gold sticks to modest intraday losses through the first half of the European session, though it holds comfortably above the $5,000 psychological mark and the daily swing low. The outcome of Japan's snap election on Sunday removes political uncertainty, which along with signs of easing tensions in the Middle East, remains supportive of the upbeat market mood. This turns out to be a key factor exerting downward pressure on the safe-haven precious metal.
Bitcoin Cash trades lower, risks dead-cat bounce amid bearish signals
Bitcoin Cash trades in the red below $522 at the time of writing on Tuesday, after multiple rejections at key resistance. BCH’s derivatives and on-chain indicators point to growing bearish sentiment and raise the risk of a dead-cat bounce toward lower support levels.
Follow the money, what USD/JPY in Tokyo is really telling you
Over the past two Tokyo sessions, this has not been a rate story. Not even close. Interest rate differentials have been spectators, not drivers. What has moved USD/JPY in local hours has been flow and flow alone.
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