Monday, June 27, 2011
Failure to respect the key support and resistance levels indicate only one pattern that was or is in progress – TRIANGLE!
Nifty broke below the key support level of 5335 and moved down impulsively till 5200. This was strong indication that markets have much bigger down leg pending. But Friday’s rally proved that to be a “False breakout” and market moved up strongly taking everyone by surprise. Firstly there were fresh long positions built – up and seeing sustaining rally bears started to panic which led to short covering and Nifty moved up steeply and closed the day with a big white candle gaining 150 points which is more than 2% move up.
The only pattern which justifies these kinds of erratic movements and no respect for key support and resistance levels is “TRIANGLE”. Triangles are very tricky patterns and consist of 5 legs all of which are corrective and 3 wave structures. We can see that all the legs up and down have been in 3 waves and net directional movement is just consolidation.
Markets have not done much since the correction started in November 2010 but everytime built false hopes in either of the directions trapping both bulls and bears. It has now become a norm for Indian markets to break the key levels but have no respect for that level and just take a “V” turn later. These types of movements are both emotionally and financially draining and worse for trend followers. It looks like market has been rewarding oscillator traders and break of any key levels should indicate opposite stand.
We now expect 5600 level which has been such a strong resistance zone to be broken and prices might rally till 5650 – 5700 thereby creating false hopes and trapping people on upside above 5600 and will turn lower trapping the bulls that are entering at higher levels above 5600, it being very strong resistance. However given the current structure of market which is way too dynamic to predict and non-trending moves over medium term we would be very cautious and would not make firm statement on where we are headed in few weeks’ time.
Over short term, it will be very crucial to observe how markets open today and if Friday’s high is taken out on the opening session near 5478 and if market can sustain there. Sideways action or follow-up rally will be positive for further direction and any drift lower again will be wait and watch scenario…
Wednesday, June 22, 2011
Bottom Line: Nifty failed to sustain above 5335 and yesterday’s rally got exhausted near 5322. We might see a steep sell off further now after some sideways action. Trade cautiously!
Nifty 20 mins:
Failure of Nifty to sustain at 5335 resulted in steep selloff and prices moved towards 5200 levels. This is how important support levels are taken out. If it has to break it has to be steep or with a gap down movements and this is what has happened. The steep movement below 5335 clearly breaks the strong support trendlines as shown on above chart. Also 15 days time cyclicality bottom failed to produce any rally which might result into steep sell off further when time cycles start turning down soon.
Over short term, we can see the wave structure on 20 mins chart and we will cross below 5200 in the form of wave v of (iii). We might take a day or 2 to digest the selloff but the trend now firmly remains down. The next support level is now at 5180 below which we will see 4800 levels as we have mentioned before.
A falling market can give extra ordinary returns over short term but one needs to be prepared for increase in volatility and steep movements that might happen in opposite i.e. upward direction. Risk management becomes extremely important and based on polarity reversal the previous support near 5335 – 5350 will now act as a strong resistance.
Saturday, June 18, 2011
Nifty made a low of 5355 and closed the week at 5363 near the strong support of 5350.
Following are the reasons for not taking a bearish stand even now and expecting a positive breakout:
- The wave structure of the down move from 5605 to current levels has overlapping formations and it has taken more time to correct the entire previous up move from 5300 to 5605. This looks corrective down move to us rather than new leg down
- 15 days cycle has turned up on 16th June and Time cyclicality is not favoring bearish outlook
- 8 days Price ROC (in red) near very strong support level. This indicates markets will enter into oversold state by any further move down
- 31 days Price ROC (in blue) also an indicator of bigger cycle of 62 days took support at -9 and is showing strong improvement even when prices are moving down. This looks bullish to us
- Blue pitchfork line drawn since October 2009 crosses near 5335 levels. This line has acted as very strong support
- Red pitchfork trendline drawn from the top of Jan 2008 crosses at 5335. This should also act as a support line
- Trendline drawn connecting Feb and June low coincides with blue pitchfork line and so makes the support level stronger
- 5335 is the intersection of Blue pitchfork line, Red pitchfork line, 15 days Time cyles. If market has to rally it has to give respect to this intersection juncture
We maintain our neutral outlook even when all the above scenarios indicate positivity as we have not yet obtained positive confirmation from prices. Please understand the ultimate authority to judge the correctness of our decision is “Price”. Everything will be void if prices ignore all positive technical indications and move lower below 5330 – 5350 levels with 5335 as the KEY LEVEL.
A move back above 5450 will provide further positive evidence and confirm that a significant low might be in place. But as long as that does not happen we would wait and watch how markets are behaving from the very strong support zone of 5330 – 5350. A clear break of these levels will indicate strong negativity and we shall be ready for some serious capitulation that might happen.
Reliance Daily chart:
Reliance has been constantly losing its rank in terms of Market Cap and has been in news for almost making 2 years low. Chart is what helps us to get objectivity and see the real picture. The stock has not been doing anything since past 2 years but just consolidating sideways. It is only 50 points that differentiates from 2 year low to just 1 month low. A move above 900 will make this stock only 1 month low as the stock is in consolidation phase and not corrective phase. So a 2 year low might sound too bearish but chart helps us to see the magnitude of this statement.
The stock has broken below 880 support levels and 850-860 is the last support zone that is left. A failure of taking support near 860 will be strongly bearish not only for Reliance but also for Nifty since it has the capacity of dragging the entire market down. Price ROC is near the strong support and Reliance should atleast consolidate even if it has to go down further.
We will be strongly negative on this stock below 860 which might correct this stock towards previous low made near 500 levels over medium term horizon. Keep an eye on this stock to get a clue where major market is headed!
Sunday, June 12, 2011
Nifty 20 mins:
Cycle Analysis: Nifty daily chart shows that 15 days cycle is currently active and is very accurate for predicting the lows. We still have around 2 days left for this bigger cycle to turn up suggesting that we might continue to consolidate or drift lower. ROC shown in red color also suggests support is not in yet. Nifty has been moving in a complex wave formation as shown. The intraday chart shown below helps to understand the shorter term wave structure.
Nifty 20 mins chart, shows that we moved up in 5 waves from 5330 to 5600 and then moving down making a 3 wave structure. The prices now took strong support near 5460 which is also a 50% retracement level and turned. 5460 is also previous 4th wave support that we have marked when down move started. 5430 should act as a last support and a decisive move below it will increase the odds that we might head below 5330.
Any move back above 5540 will be strong positive confirmation that the next leg up has started. We will currently wait for 5540 to be taken out for positive breakout or a move below 5430 will raise the odds that we are heading lower. Let us see what market wants to communicate in next 1 or 2 days. It will be crucial to observe!
Monday, June 6, 2011
Nifty 10 mins
Nifty made a high of 5604.75 and turned lower to close the week at 5525. We have been talking about resistance level of 5605 for more than 2 weeks now and we can see the power of this level. Nifty is showing sincere respect for this level and failed to move above it. After touching that level prices immediately turned and started moving down impulsively. We are now correcting in the form of an irregular flat correction as shown and are now in wave C of this flat correction. We do not see this minor downward pull back over as yet and expect atleast consolidation of drift lower now atleast till 5490 – 5500 levels. Prices should retrace till 38.2% of the move up from 5330 as shown. Also time wise we expect atleast one more day of correction pending before we can turn up again.
Any move up above 5605 in lesser time then it took for the move down from 5604, will indicate the previous uptrend has resumed but till that happens we should wait for current minor correction to get over and use any pull back as buying opportunity.