Last month in my article, “Where is the Top,” I discussed the probability of the markets doing a small correction before making another run at the old 2010 price highs. I wanted to look at the follow through and see how the Nifty and Sensex performed and where they may go in the future.
In my February article, I noted that the indexes were approaching supply and with a negative divergence on the RSI were showing signs of retracement possible.
Looking at the current chart, you can see that the retracement from the supply did indeed occur. We pulled back toward a weekly demand and the RSI did hold above 40 so the bullish overall trend is still intact.
Though we did not have a lower low made on the Nifty or the Sensex, I am concerned with the price action that I did see. On the daily chart of the Nifty, you can see that the last impulse was shorter than the preceding one. This is a sign of weakness. Additionally, when prices moved back upward, they stalled last week at a daily supply zone.
If the Nifty breaks the 5650 level, price will have made lower highs AND lower lows on both the daily and weekly charts and that is the definition of a bearish trend. Should this happen, 5200 could be the next stop for the index.
The Sensex is similar in its picture. You can see the lower highs that have occurred after pulling away from the supply zone. We need to hold the early March low to maintain the bullish trend or else a retreat to 17700 is likely.
So watch prices closely, they offer you the clues as to where the markets are most likely to move and tell you how you should be trading. To learn more about reading price action, visit Online Trading Academy today and enroll in one of our Professional Trader courses.