The Week Ahead 12/03/2007 – 16/03/2007

Often time I hear people saying, technical analysis is for analyzing short term price trend and accommodate swing or short-term positional traders. Bundles of tools and indicators have been introduced to the financial world. Analysts keep on using them to get a sense of market movement. And accordingly, give their trading calls. Often in brokerages, so-called technical analysts report trading calls, support and resistance levels for any asset price and so on.

While world remains busy in all these things, we do forget the basic foundation of technical analysis. It’s not moving average, stochastic oscillator or bollinger band, it’s only and all about the traders psychology. A technical analyst’s basic objective is to decipher what the market participants are thinking at any given price situation. And they check price movements to identify any possible price trend. Price of any commodity or financial asset is the single most important thing that indicate demand-supply situation in the market. And demand-supply is the lifeblood of any market. If anybody analyzes these two sides of the market properly, will find out the basic ingredient behind the price move and price strength. I cannot say why this is called “technical analysis”, but irrespective of the time period such type of analysis often leads to prejudgment. While fundamental essence is intact, technical analysis may show a possible trend reversal and puzzle the analyst. So he tries to figure out the fundamental evidence and manipulate his analysis to make it more acceptable (as nobody likes any bear prediction!!). Besides, every type analysis is probabilistic in nature; so all the indication cannot be full proof.

In last few write ups I have said that I am expecting an interim bear phase in Indian equity market. But everybody out there in the market are very much vocal about the economic soundness and corporate performance. I cannot deny that even. So I was not much confident over my forecast. I even tried to present some supportive news article in my favor and indicated that the week would be decisive. The week is over with spectacular move on Thursday. Inflation figure is out and it has increased marginally. But I am still stick to my last forecast regarding interim bear phase with possible down side of 3250-3300 for nifty50. Though no confirm supportive news is out there in my favor, I wish to rely on cumulative wit (and market psychology is nothing more than that). Current price move is still not looking strong and can potential break some strong supports. Lets wait and watch, how far right the price indication is this time.