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Market Outlook – Monday, Mar 19th 2012:-
What we have seen on last Thursday & Friday?
On Thursday - We have seen Nifty falling down on lower volume, which was a temporary weakness and we were expect Nifty to bounce back on Friday so that a successful ‘test’ or ‘shake-out’ is confirmed which will pave the path for further upside. But market is supreme, what they do we have to listen, understand and follow. We need not argue with the market at the same time we need not dictate the market.
On Friday - We have seen nifty bouncing back during the first half of the day which was exactly as expected by us on Thursday but selloff took place just after the budget and finally we closed down in -ve zone on higher volume. Smart Money can see windows of opportunity better than most other traders. Good or bad news (call it a news or event like budget) is an opportunity, so is a lull in trading activity. Late in the trading day, just before a holiday or before weekend, is often used and so on. As they take these opportunities, reduced effort is required to mark the prices down (this is now cost effective), the market automatically tells them a story. So, taking a reason of bad budget to pull the market down is a technique used by smart money to better their trading positions.
Based on higher volume & wide spread down day seen on last Friday we can draw two conclusions either we have seen an Up-thrust or an Absorption volume on last Friday.
1. Up-thrust (Sign of Weakness) - Up-thrusts can be recognized as a wide spread up during the day, accompanied by high volume, to then close on the low. Up-thrusts are usually seen after a rise in the market, where the market has now become overbought and there is weakness in the background. Up-thrusts are frequently seen after a period of selling, just before a down-move. Note the day must close on or very near the lows; the volume can be either low (no demand) or high (supply overcoming the demand).
2. Absorption/Stopping Volume (Sign of Strength) - High volume on a down-day/bar always means selling. However, if the day’s action has closed in the middle or high (only if Monday’s closing is higher), then smart money and other professional money must have attempted to buy into the selling, or absorbed the selling (by buying), which then causes the market to stop going down. Smart Money will only buy into a selling down-day if the price levels have become attractive to them and the trading syndicates have started to accumulate.
Monday’s move in Nifty will decide the direction for the market?
If Nifty closes at least 30-50pts up on Monday, then it is clear that the high volume seen on last Friday was an absorption volume hence a sign of strength. We may see Nifty bounce back to 5500-5600 levels again.
In case if Nifty continues fall on Monday also then it is confirmed that we have seen an up-thrust on last Friday and we may see Nifty falling down to 5200 levels again.
God bless you!
Prof. Sameer Jain [Student of Market], E-Mail: Sameer@hbjcapital.com
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