Now that's some PullBack.

After yesterday's post, realized something very important. Whenever we make an attempt predicting the market we "Should" consider both sides of the trade - In yesterdays' post there was nothing mentioned about a pullback and today we got the strongest pullback of the year so far :).

Let's look at the hourly chart for Nifty futures below:


Nifty has retraced 50% from it's low's and I would go bullish only if the 61.8% level of 5230 is crossed.

However if we look at BankNifty futures [BNF] below:

BNF has clearly closed above the 61.8% retracement level. It's shouting clear and loud that it does not like going down any further. I would have had preferred better volumes though.

Factors to consider further:

1. We are seeing "Extreme" volatility in the entire world markets. Trading thumb rule says - "When you dont know the trend, reduce your positions or stay out of the market". Preserving your capital is utmost priority.

2. With #1 in mind, let's look at a few positives - there seems to be some FII buying atlast. EU and IMF together have agreed to release $1Tr to solve the Debt crisis. NF has closed above 50% retracement level. BNF has closed above 61.8% retracement level. It's the Large caps that lead the rally today - which is a good sign. Dow is trading at +3.5% when i write this.

3. On the other hand, this could easily be "just" a pull back and we might see more downside in the nearterm. Because we have gone down so ferociously, the pullback could be a similar one.

How do we trade in such a market?
If you observe the 5 mins or the 15 mins charts carefully, you will see how well the market is trending both ways [long and short], inspite of gap up/down. Follow the trend, have strict stop losses, and book profits at support/resistances and minimize your carry over positions.

-Sri