To understand this first let us first learn about break out. A
breakout is the point at which stock breaks away the price or moves
out of a trading range or pattern with significant volume. Technical
analyst will often look for breaks of support and resistance to enter
positions. From the definition you know that there are two key
components to confirm a breakout: (1) price and (2) volume. When
stocks break critical levels with volume then it is called a breakout
but when it the same thing occurs without volume, you should consider
the breakout to be false break out in our term it is Chakravyuha.
Please understand that we gave a sell call when the indices entered
the danger zone of 21000 way back in 2008 analyzing in the same way.
Let us check the volumes now and find out if it is real break out or
it is a chakravyuha. The BSE clocked a turnover of Rs 6,055 crore,
higher than Rs 5,722.02 crore on Friday, 4 September 2009. Yes the
volume is good. But here is the googly…
Turnover in NSE’s futures & options (F&O) segment declined to Rs
57,490.85 crore from Rs 70,260.73 crore on Friday, 4 September 2009.
BSE volume is higher indicating some stock specific activities and
speculative activities happening in the market and the Futures and
options volume (which cannot be manipulated so easily) clearly
illustrates that the volume is less and we need to be careful with the
movement of the indices.
For tomorrow’s trading – the key level to watch – 4842 which was the high formed on Tuesday and 4782 which was the low of yesterday’s trading.