>Time for a Healthy Correction…. (MOTILAL OSWAL)

At the start of the month of September, Nifty broke the neckline of "Inverse Head and Shoulder" pattern and it started making higher tops and higher bottoms on the daily chart and made a high of 5110 on 1st Oct. Among the sector indices, the BSE Bankex, BSE Metal and BSE Health Care were the top gainers. On the daily chart Nifty has made a "Evening Star" pattern and the RSI oscillators has given a negative diversion. On the weekly chart, stochastic oscillator is giving sell signal, thus one should be cautious at current levels, but the confirmation of downtrend will come only if Nifty breaks its recent low of 4900, thus one should keep a strict stop-loss of 4900 for all the long positions. On higher levels the recent high of 5110 will play as a strong resistance, if Nifty manages to break this resistance then we may see continuation of upmove in the coming days. However as Nifty made an "Inverse Head & Shoulder" pattern and on the weekly chart Nifty is still making "Higher Tops and Higher Bottoms" thus the long term trend is still bullish.

Going forward, one should be cautious at current levels and keep a stop-loss of 4900 for all the long positions. If Nifty breaks 4900 then it can test 4821 and below that 4731, these are 38.20% and 50% retracement level of the rally from 4353 to 5110. Below 4731 Nifty has strong support at neckline of "Inverse Head and Shoulder pattern, which is placed at 4650. The long term trend is still bullish thus 4750 - 4650 would be a good accumulation range for long term investors.

On higher levels, the level of 5110 will play as a strong resistance for short term. If Nifty manages to break 5110 then it can test 5168 and above 5298, which is May'08 high. However if it sustains above 5298 then it can test Feb'08 high of 5545.

ACTIONABLES:

In the current scenario, the strategy for Nifty would be:
1. The existing long positions can be held with strict stop loss of 4900.

2. Fresh long positions can be created only above 5110 with stop-loss of 4968 for the target 5298.

3. If Nifty is able to cross 5298, then by using the trailing stop loss method, the trading buying positions can be continued for the target of 5545.

4. Trading selling positions can be created if Nifty breaches the recent low of 4900 with a stop-loss of 5005 for a target of 4731.

5. If Nifty breaks 4731 then by using the trailing stop loss method, the trading selling positions can be continued for the target of 4650.

To see full report: MARKET OUTLOOK