The SUPPORT: 200-week moving average
There is a very simple trading rule: When stocks are in Long term Bull market - then they do attract strong buying at Long term moving average like 200 week moving average
What has Nifty done every time it has declined to this level in last 4 years?
Answer: Taken Support and Formed a Bottom
Here's Nifty weekly Chart
As you can see in the chart above: the 200-week moving average has been great support area and Nifty generally has bottomed out around this area by trading near it for some weeks. It declined to 200 week ma around May-June 2012 - took support and formed a small bottom by trading near it for 3-4 weeks before making a good bullish move
Then again in July-August 2013: when Indian economy was in free fall mode - Nifty declined to 200 week moving average. The situation was super tense then and INR was in panic grip but even then Nifty refused to close below 200-week moving average. It's quite interesting that for two consecutive weeks - Nifty tanked below 200-week moving average during the week but closed above it and that became the ultimate bottom for the current Bull run. The positioning of Nifty today is quite similar.
Nifty is once again at 200 week moving average and on Friday - it did bounce from that level. The low of 6869 assumes a lot of importance. If history is any guide - then ideally Nifty will try to bottom around current levels for weeks, build a base here and launch the next bull run from current levels
Having said all the above: If Nifty decisively breaks down below 200-week moving average; then all bets are off and one should be ready for anything because then the market would be officially in PANIC zone even for long-term investors.
Here's the Good News: S&P500 Bullish Structure is intact
As you can see in the chart above: S&P500 once again bounced from 1810 and kept the bullish structure of the market intact. I covered this S&P500 structure on Feb 10 2016
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers