Weekend Report-Nov 20th 2010- Market Technical Analysis

Traders,
Though last week was a short trading week, it brought both frustration and hope. At one point, ASI dropped to 6451.55 which was below the support line we were watching. But very next day it climbed 93 points to 6565 giving some relief to the traders.
If you look at the last two trading days on the ASI daily graph, you will notice that it was under clear accumulation. There was heavy selling on Wed, but prices held on tight. And on Thu some traders/institutes clearly bought stocks on the bet that budget will uplift the market.
Let's look at three market graphs.
If you been following this blog, you should now be familiar with reading it.Market is back in the safety zone and reasonably good volume supported the uplift.
Thursdays market action is counted the first day of accumulation (after failing one such attempt in 3 weeks ago).If ASI can confirm can the positive trend at least two more days without heavy selling off days, one can buy shares on "Scale Up" basis.

Lets dig a little bit further;

Notice the Stochastic oscillator above trying to go up from the oversold territory. Also Money Flow Index (MFI) hit a substantial lower point on Wed and now trying to head up.

Finally, let see how stock accumulation happened on Thursday; Traders bet on budget!

 
This brings us a good point. Should you buy stocks on speculative news? Most of the traders do not have capacity to influence the market, specially the market leading stocks. But there are traders and institutes who can make the price if they wish to, because of their enormous trading capacity. This is common to any stock market. In a scenario like this, our best bet is to monitor the market and follow the line of least resistance, meaning if the market is clearly heading up Buy and if market shows weakness Sell. In other words, market should confirm the trend for us to get in.
That does not mean you can make money by betting on news. You can. But is it a good enough reason to bet your capital?. I don't think. Preserving your capital is the key to stay in the market. And losing a few points in waiting and evaluating market is a good insurance premium. It puts you in a better position and make you a prudent trader.
With this technical insight in mind, watch the market on coming days, and getting in on Scale up basis if everything is in your favor. If market shows sideways again, You know what to do...

To your success,
Manoj Balasooriya

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