It’s Magic.

This is an excerpt from the newsletter sent to clients on Wednesday evening:
It’s Magic
Yesterday, we wrote to our subscribers:

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Support for the Nifty comes around 5180 which is where it had encountered resistance many times earlier. If this area holds, then we should expect a period of stability, and, who knows – another up move that touches 5400 or nearby.

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This information was also given to CNBC viewers. Today morning, (wednesday morning), I appeared for a brief tech call on CNBC which was probably broadcast around 8 AM. I said that buying is suggested if the Nifty dips to 5180 where significant support comes.

Today, the Nifty fell, touched the 5180 support zone, twice, then rallied to close strongly above this support, at 5233.95, gaining 0.45%.

Quite often, Support and Resistance levels act like MAGIC. This one did so.

The Nifty seems to have completed a period of correction, and is well poised for another round of gains. If this is a false signal, the first sign will come if the Index closes below 5176 – today’s low. Until that happens, I feel the trend is UP and buying should be done.

The current decline looks like a Flag. A flag will normally come half way is a trend. Let us look at the move for the Nifty:
Top of the latest up move: 5310
Start of the up move: 4943
Net gain: 367
Flag breakout occurs around 5240, therefore, if this breakout actually takes place, we may be looking at a target of 5240 + 367 = 5607. Now, these are only probabilities, but the market can surprise us, which is also a probability.

Cheers!