Since the 14th of September last Friday since up until today the market has been seized by news flow both of the good kind and the adverse kind.
Whilst QE3 and the diesel price hike caused a gap up on the 14th, the FDI news on Monday and the political situation on Tuesday have caused large differences between the open and the closes on each of these sessions.
The result has been a profile which has looked like this :
So we have short covering at the open on the 14th with a buying tail and long liquidation or profit booking on the 17th with a selling tail and two balanced profiles on the other two.
The most important aspects of the above chart are the buying tail below at 5530 and the selling tail above at 5670.
The process looks random but not until you merge the profiles where a distinct pattern emerges.
Have a look :
The merged profile above in Market Profile parlance is called a double distribution or a DD in short.
You can read more about the DD here- http://www.vtrender.com/content/double-disitribution-dd-0
Now that the market has formed the DD there are only two possibilities :
1) It will auction the zone between 5574 and 5616 and form a larger balances over a few more sessions. We saw this kind of a structure developing in the BankNifty a few weeks back. Such a move immediately from tomorrow will be positive for the markets and keep the uptrend intact and give a stronger base for a launch up later in the year.
2) The market will auction immediately the single prints 5528 to today's close and then proceed lower in the next few sessions. If such a possibility has to play out then the market will stay below 5574 over the next few sessions. Even if it does move above 5574 for a few points, the single prints in the middle of the profile will check upsides. The key to further downsides would be to see where the market establishes value relative to the lower distribution of the profile.