Nifty: Where is the support?

There is a saying: There is no resistance that resists when market is moving up; and there is no support that holds when market is falling. Having said that - there are two levels one should watch out for support. Remember, I am saying: only watch

Support: 20 week moving average

Well, you must be wondering what is so special about 20 week moving average. This is the level which acted as stiff resistance during the entire bear market of 2008; and so now by definition - it should act as level of strong support

Trading Rule: A stiff resistance when taken out becomes the strong support level

Source: ChartAlert (www.chartalert.com)

Nifty on friday made a low of 4687 quite close to 20 week ma of 4667. Remember, on weekly chart - closing is of significance. If by end of next week - Nifty closes around/above 4680-4700 - we will be able to assume with some comfort that Nifty has found support at 20 week ma till Nifty proves otherwise.

What if Nifty breaks 20 week ma - then where is the support?

Answer: 200 dma. Interestingly, it coincides with lows Nifty made in July correction. The bad news - it is 16% down from current levels.

Source: ChartAlert (www.chartalert.com)

Is it possible? Can Nifty tank another 16% to 4000?

Anything is possible. What if Global market starts tanking? Technically, if Nifty breaks 4650 decisively - all bets are off; and one should brace for steep decline to 3900-4000. Remember, how China tanked more than 20% in the month of August even when Global cues were stable.

Where do we go from here?

Well, Nifty will try to defend 20 week ma/100 day ma this week which currently stands at 4650-4680. If Nifty fails to hold it, then expect a very sharp sell off to 200 dma which stands at 4000.

This is not a market to be brave. The setup is very bearish. Remember, on Friday - Nifty did very bearish thing - it rallied , touched 50 dma and sold off. Generally, this leads to accelerated sell off to next moving average which is 100 dma and if that does not hold - the target becomes 200 dma.

One thing is certain: Expect sharp moves ahead