"A Rock And A Hard Place"

JC Parets
April 28, 2020

If you are caught between a rock and a hard place, you are in a difficult situation where you have to choose between two equally unpleasant courses of action.

In many Indian stocks that is exactly where many market participants find themselves.

Let's take a look at why.

Bharat Forge is a good example of what we're seeing out there. The stock is stuck between former support that's been intact for nearly 6 years (355) and former resistance that's been intact for nearly 15 years (200).

Click on chart to enlarge view. 

As a market participant, it's difficult to bet on this type of stock longer-term in either direction as long as prices are between these two levels.

As a fresh short or someone liquidating longs, you don't want to be placing orders near 200 because the market's telling you there's still underlying demand there.

As a fresh long or someone liquidating shorts, you don't want to be placing orders near 355 because the market's telling you there's still overhead supply there.

As a result, you have this range develop that neither longs nor shorts want to bet against breaking. Why would anyone want to be the one to force it in either direction when the market punishes you for doing so?

People who are trading the range are being rewarded with gains, while those betting against it continuing are punished with losses.

And thus the range continues.

And it will continue until a large buyer or seller, an institution, puts enough supply or demand on the market to break the range. Once that happens, the positive feedback loop that's been in place will be broken and a new behavioral trend will manifest itself in the market.

So what's the best course of action for someone with a timeframe of several weeks to several months, or longer?

Wait. Let the institutions who set the trends show their hands and then we can position ourselves to ride along to profits with them.

In the meantime, trade the range if you'd like, but until prices break decisively in either direction and begin trending, there's no reason for us to be betting aggressively.

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Thanks for reading and let us know if you have any questions.

Allstarcharts Team

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