Nifty can reach all time high if Jan 2011 high is cleared

The Indian markets can reach all time highs if a key resistance level formed in January 2011 is cleared. Nifty is already at that level and the Sensex is lagging a little behind.

A look at the combined chart of the Sensex and Nifty above clearly shows the latter at the resistance level of January 2011. The chart on the top is that of the Nifty and the Sensex is shown below. The level is shown by two solid horizontal lines where the Nifty closed yesterday. The Sensex on the other hand is lower than its 2011 resistance level which is shown in blue horizontal lines above Friday’s close. If the Nifty is able to clear the resistance level it is at right now it could reach its all time high resistance range of 6275 to 6350.

The January 2011 resistance level for the Sensex is between 20450 and 20677. The all-time high of the sensitive index is near 21200. For the markets to rise both indexes must clear their resistance levels. In the past, the Nifty has often cleared its resistance level only to pull back as the Sensex was unable to clear its level. Hence traders should look at both indexes before taking positions.

The indexes have been breaking resistance levels after a brief pullback and so it remains to be seen if the January 2011 level will prove to be turning point for the bull. So far the bears have been proven wrong, with strong sell offs resulting in an equally strong bounce from support levels.

For instance the huge sell off on May 13 was stopped by a gap support, which then led to a strong bounce. The gap support is shown by the white arrow on the Nifty chart.

Factors favoring the bulls are momentum and trend. The trend has surely been bullish off late. They say the trend is your friend. But that truism does continue to say, “till the bend at the end.” So it’s possible that the markets could be near the bend at the end. If the January 2011 highs do not stop the market, possibly the all time high will.

The other factor favoring the bull is momentum. Prices in the latest run up have risen faster than they fell. This clearly indicates a strong bull. But like we often say, we’d not buy when the markets are at resistance levels. We’d ideally wait for a break out to new highs before taking a bullish stance and only buy when prices retrace back to support.

The other factor supporting the Indian markets is the rally in the US markets. The US markets have rallied to new all time highs, but the Indian markets have not. It is very likely that the Indian markets will follow the US markets at least to make it to its past all time highs.

So how do you trade the Indian market when it is near its all time highs?

The best is to just do intra-day trading based off support levels on a 60 or 30 minute chart. The other option is to take a long-term view that the market will either break out or pull back and take positions accordingly with stops based off support or resistance levels.

This clearly is a tough market to trade for technical rule-based traders as an over bought market continues deeper into overbought territory. But one has to play the hand one is given and we’d take only a short term view of the market for now.