Trend is your Friend unless ..

  • Let’s understand the definition of when the trend changes or as per Dow theory – when index don’t confirm each other.

    In above chart what we are witnessing is broader indices sending out a clear signal of the current uptrend coming to a halt at least.

    Notice The CNX500, CNXMIDCAP and CNXSMALLCAP. Ok, The Orange, Black and Red. Clear?

    Let’s see further how they have breached their previous ATH. Remember, resistance becomes support? Well, not any more.
    Secondly, They breached previous higher lows. A higher high higher low followed by a higher high and a lower low? So? Yeah, the equation is not correct and probably we are in a sideways market for now at least.
    Thirdly, All these three indices and Nifty50 diverging. Nifty50 is still sustaining previous higher low and today probably it may close below it while all other three are bleeding red. That is quite a divergence between indices.

    Too soon to say? Yes, may be. But, this is a signal or at least a warning to stay cautious. Cash is good and Cash is king at times.

    Thanks for reading and learning about Dow Theory, its basic principles and Trend analysis in this simple post.

    Till next trade,

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