Wednesday, September 2, 2015

Nifty: Leaders are not falling. Newly coined "h" pattern! Will it work AGAIN?

Bottom Line: Nifty looks to be forming an “h shaped pattern a sharp fall after a sharp rise probably forming a double bottom! We have coined a pattern that looks like "h" shape...

Nifty daily chart:


Nifty 60 mins chart:


Wave analysis:
In previous update we mentioned that, expect a range bound activity to continue between 7870 and 8080 levels over short term. Break below 7870 can increase the downside pressure but the fall might get limited and protect 7667 which is previous spike low.

Nifty had a Gap down opening of around 65 points and the index continued to trade negative throughout the day with selling pressure intensifying post 1 pm. During this downtrend many of the stocks have managed to protect the previous pivot low. One should keep a watch on market leaders that have contributed maximum to the trend. So if we look at stocks like Tatasteel, Tatamotors, Yes Bank, ADAG Group, Reliance Industries etc are still well above the lows made in previous week. So the leaders in the downtrend are now showing resilience which is suggesting that the intensity of down move on Nifty should now reduce.

As shown on daily chart, prices are moving in downward sloping channel and prices are now near the lower end of the channel. We have come across a pattern probably no defined in text books but is found at majority of junctures in Indian markets named as h shaped pattern. The reason for naming it as an h pattern is because the structure looks very much like this alphabet. This pattern is formed when a sharp down move is suddenly interrupted by sharp up leg which does not last for more than 3 to 4 days and later prices come back to test the previous lows. The lost made in August 2013 also formed this pattern. The above daily chart shows circled areas that exhibits this h pattern. It creates more pessimism then the previous low even if that is not broken. Even now the pessimism is widespread even when Nifty has not broken below 7667 levels. We look at this from contrarian perspective and the leaders that resulted into capitulation in previous week are not contributing in current fall! So stay alert in case there is sharp reversal.

Nevertheless, from trading perspective one should apply bar technique which suggests that for any positive attempt we should see close above previous bar high. So unless that happens one should avoid creating fresh long positions and let this pattern complete its course.

As shown on hourly chart, the current ongoing structure can be wave x which is forming a Flat correction or a Triangle pattern and prices are currently in wave b of this pattern. Now a move above 7930 will indicate that the h pattern is over and upside retracement has started.

In short, avoid catching a low as the line of least resistance is on downside and medium term trend is negative. Only move above 7930 will provide first positive indication and prices can then retest the highs of 8100 on upside. Next 1 to 2 days are crucial and will indicate if our reading of h pattern is correct!

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1 comment:

  1. Major Corrections are part and parcel of Bull Market. Jury is still out if this is a Major correction or Start of the Bear market. Either way this damage is more self-inflicted one with both the Ruling and Opposition parties more worried about winning the Next State elections , even if it means the country goes to dogs due to opportunities lost!!!!