Relatively rare in the good old days, False Breaks (or more correctly “flushes’) are quite common nowadays. Since most trade is done by computers and more importantly algorithms and virtually all order flow is sold to internalizers, the good programs have a very good understanding (big data) of where stop-loss and/or stop-buy orders are clustered. In this case even a brief glance at the chart would have sufficed; the key levels of January through March and September 2015 all coincide around 8700<>8950. A struggle and severe wiggling of the market was the least to expect.
Zooming in clarifies the outlook for the near term quite a bit: the flush above 8950 is extremely likely to hit the market on the sell side. Especially from a risk-reward stance the market is an outright short-entry at this point. The main barrier seems to be holding out after the recent shake out while indicators are clearly bearish. As said, risk reward is outstanding: the peak of the flush cannot be surpassed any time soon, otherwise it is not a flush. So with stops at 9020 or so, near term traders should solely focus on the sell-side with targets coming in around 8130-ish.
For the long term things our most probable scenario is the start of a longer, deeper and more serious correction towards ~7500.
- Primary trend: neutral
- Outlook: long-term fragile, near-term excellent short-entry
- Strategy: short-entry
- Support: 8865 / 8452 / 8133 / 7940-
- Resistance: 8762 / 8910 / 8960+
Intraday 3-hrs chart NSE Nifty
Daily chart NSE Nifty