Difficult times probably not over

Writing on the morning after bomb blasts rocked Delhi, it is not easy to be optimistic. Of course, this is not a good approach to trading. We really need to rely on the charts for our road map. But, with charts, the trader should consider the environment in which the charts are developing.

For the Nifty, Friday’s decline was not bullish. The index has broken down from the 4250 – 4650 range. Depending on how you define the range, the best we can say is that it is on the lowest support line of the range, at 4200. There is a clearly visible bearish head and shoulder pattern in the Nifty. A close below 4225 (approx) will confirm this pattern. If confirmed, we have a target of 3800 approx – whch happens to be significant support. Now, a pattern does not have to go down to touch its target. But the probability of doing so is quite high.
More worries about the head and shoulder. Reliance & Bharti Airtel have already broken down from similar bearish H&S patterns.
The Environment. Almost all world markets are in a bear phase. Thus, the intermarket relationships are quite bearish. In India, there is likely to be poltiical upheaval in the next few months. This weekend, a firesale is going on in the USA where one of the largest investment banking firms, Lehman Brothers has to get financing or face difficulties. If financing is available, then Monday may again see a relief rally in Asia (maybe not since the Asians are slowly getting wiser than the West). A relief rally is not going to change the down trend. Difficult times are ahead.