On Charts - What qualifies as a Support?
It is a level where dip buyers buy and short sellers cover giving confidence to market participants that it's a safe place to trade long.
Let's look at the Nifty daily Chart
As you can see in the chart above: Nifty formed a low around 7930 on June 24 - Brexit day. Again on Nov 21, Nifty formed the same low post demonetization panic and bounced on following day. Since Nifty has twice bounced from this level - it's highly possible that Nifty dip buyers will once again support the market if Nifty dips again to 7930.
The Level of 7930-7980 has more significance than this two bounce
If we extend the chart and look at last 12 months - we will find that between Dec 2015 and May 2016: Nifty faced severe resistance around 7980 before it took out decisively by end May 2016. Hence on any pullback - this level is bound to act as support as it has happened on June 24 and Nov 21.
What does this mean?
Nifty Bulls might do everything to protect Nifty from falling below 7930-7980 safe zone as it has time and again proved to be an important support level. Having said this - if the market gets new information and it believes it has to trend lower, then no level is sacrosanct. What we can say: As of now - traders have right reasons to Go long around 7930-7980.
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