Therefore, immediate rallies would be interpreted as corrective until the medium-term technical parameters turn positive. The Sensex’s recent move higher since the 12514 low has been very sharp. The July 23, 2008 upward gap had created a bullish “Island Reversal Gap” on the daily charts between 14510 points and 14519 points.
Normally, the impact on the medium-term outlook would be very positive, especially as the ���island��� consists of 22 trading sessions. When a stock is trending up, trading above the gap that occurs, then moving the gap back down and trading below the opening price, an island reversal has occurred.
However, the Sensex has now entered a strong resistance zone between 15026 pts and 15390 pts. The June 2008 midpoint is at 15026 points. The 50% retracement level of the pullback from the May 2008 high (17735 points) is at 15124 points. The positive implications of the bullish “Island Reversal Gap” would thus be negated if the Sensex closes below 14104 for the day (close on July 22, 2008). The Sensex is then expected to have an initial downtrend from 13,513 points, the 61.8% Fibonacci retracement level of the recent rise from 12,514 points to 15,130 points.
If the bearish ���Iceland reversal gap��� of 14484-14568 points is filled immediately and the Sensex manages to decisively overtake the resistances between 15130 points and 15390 points, the ongoing upward move would resume. The Sensex can then test higher values between 16618 points and 16860 points.
The 78.6% Fibonacci retracement level of the pullback from the May 2008 high sits at 16,618 points, while 16,860 points is the 50% retracement level of the entire pullback from the January 2008 high. Therefore, one would await further confirmation before taking a positive view of the medium-term outlook.
(The author is VP of Technical Research at Darashaw)
https://economictimes.indiatimes.com/markets/stocks/recos/wait-for-more-signals-before-turning-positive/articleshow/3292640.cms Wait for more signals before turning positive