Tuesday, May 25, 2010

Dr.Elango's RSI dilemma

My Mudraa friend Dr.Elango called me a short while ago to share a genuine dilemma with me.

"Jagmohanji, at present nifty is at 4835.

RSI 14/30min on 1 month chart is at 7.

According to what I have learnt, Nifty shouldn't be falling much from here.

But many of my friends are saying that if Nifty falls below 4830 then it will fall big!

Both these statements seem contradictory."

Well, Dr.Elango's dilemma was right as well as wrong.

Right, because 4830 was crucial support!

Right, also because, nifty had room between 7 and 0 to fall even more!

Wrong, because when rsi on 1month (and not intraday, mind you) is at 7, it is quite an oversold position already!!

Though, to fall from this already oversold position is not impossible, that fall has to be quite low.

Even if it isn't that low (due to panic situation), the force causing that fall has to be Mammoth!!

Besides, the spring back will be equally swift!

I told Dr.Elango that in my opinion RSI 3month chart (14/1day) indicated that we might see 4700-4750 levels also.

But (and that is a big 'But')

RSI has to climb to upto 15-25 on 1 month chart to make some room for more fall.

So, in my opinion, nifty can't fall "huge" from current "considerably oversold" levels "Today"!

It can fall that much "Tomorrow" provided RSI climbs before market close today and makes way for that fall!

Otherwise, either "big" gap-down opening tomorrow is not possible

or

The pull back will be dramatic!

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