Yeah you read right, Penetration! (Don’t we all love Penetrations?). Well that’s what we did today. We have penetrated (a gentle poke by the bulls….the bears might not like it though!) the 50 DMA and the Trend line (see daily chart on the right). Encouraging? Yes! But before we get euphoric about it, there is a caveat attached to it. According to the pundits a mere intra day penetration is not enough. To rule out a false breakout and a whipsaw, one should apply the following two rules, when Price breaks an important moving average or a resistance line.
· Percentage: One school of thought prefers that the penetration to be valid should be in the region of 2 to 3 percent. This has a slight drawback, now a days waiting for such a penetration can rob you off nice scalping opportunity.
· Time: This school of thought suggests that the penetration to be valid, the price should have to successive closes above the moving average or the resistance line it had originally penetrated. This makes sense to me and I shall wait for it to happen in the next week. Yes sir the bias is not changing at the drop of a hat!
So coming back to today’s action Nifty just tested the strength of the resistance it’s faced with, and quietly backed off to a respectable closing. We had good inflation figures (they had to be… after all so many people worked overtime to fudge them). The market wasn’t impressed, maybe coz they expected this financial wizardry from the government. You see Politics Smart… Market Smarter! Today’s close is acceptable to both the bulls and the bears. The bulls are happy coz they managed to nudge past and close near the psychological level of 50 DMA, and bears are happy that 5000 stays for now. Again we are going to have DOW effects petered down because we are closed tomorrow. And to top it, this news of CRR hike. If you are sure of your overnight positions then sleep well, and for the rest, it’s going to be a very long Thinking! Weekend!!!
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