| Indian markets hit wall of China |
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| Written by George Albert |
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Written for Business Standard If you recollect we had written on November 8, 2010 that it was time for aggressive traders to go short and recommended against going long anymore. That observation proved prescient as the markets have corrected substantially. We think the Sensex can go down to 18,000 if the 200-day EMA is broken. We focusing on the Sensex, but the NIFTY too has similar price action. There are two reasons for the current bounce. One is obvious to most traders, it's the fact that Sensex touched its 200-day EMA. There is another reason. Look at the horizontal lines on the chart nearby, from where the Sensex bounced. Now look to the left from where the lines originate and notice the gap. On September 13, 2010, the demand for stocks far exceeded the supply of stocks that the prices gapped up and continued its rally. The index was also breaking out of a previous high, which resulted in a lot of break out traders going long. When prices came back to that level where demand exceeded supply, the market has caught another bounce. So the bulls had a confluence of two factors--the 200-day EMA and gap--in their favor, which resulted in a bounce. It remains to be seen if the bounce is sustainable. For one the market made it's third lower low last week and a lower high on January 3, 2011, the most recent high before the sell off. A market beginning to make lower lows and lower highs is the early sign of an emerging bear. Unless the market closes above the Jan 3 highs, we would stay on the bearish side. However, now is not the time to short the market as it has sold off substantially. The areas to take short position would be at the 19,550 level with stop above 19,650 and at the 20,650 level with stops above 20,750. Remember to take your stops to avoid huge losses. Also note that markets often bounce strongly from their 200-day EMAs. Chart Analysis
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