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Market Outlook – Wed, Mar 14th 2012:-
On Tuesday, we have seen a gap-up opening in Nifty followed by almost flat day closing on the high end which is a clear indication that upside will continue for some more time. But the biggest worry for me is volume is not peaking up while we have witnessed bounce in Nifty from 5200 levels, so it is almost confirmed that the recent bounce from 5200 is not a resolution phase but it is just a part of reaction phase. Under such circumstances we are most likely to trade in a zone of 5200-5600 for some more time. It is advisable to remain cautioned as and when we approach 5600 because the trend traversal may take place near 5600 levels and we will fall back in the trading range as shown in the chart above.
Successful breakouts occur in three phases, it begins when price breaks through resistance on increased volume. We’ll call this the action phase (1). Price expands a few points or ticks and then reverses as soon as buying interest fades. This starts the reaction phase (2). The market sells off and spawns the first pullback, where fresh buyers see a chance to get positioned close to the breakout price. If all systems are “go”, a second rally kicks into gear and carries price above the initial breakout high. This marks the resolution phase (3).
The three phases of a successful breakout are dependent on certain volume characteristics. Demand must exceed supply during the initial breakout. Volume should “dry up” when it pulls back in the reaction phase. As of now, we are witnessing low volume day which is nothing but the reaction phase. New buyers need to jump in to ensure a successful resolution phase.
God bless you!
Prof. Sameer Jain [Student of Market], E-Mail: Sameer@hbjcapital.com
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