Tuesday, December 6, 2011

Nifty is forming a big Head & Shoulder pattern!

Nifty Daily chart
Nifty 10 mnis chart:
 Nifty daily chart above shows a Big Distribution Head and Shoulder pattern that replicates text book example of Edwards & Magee book. Head & Shoulder topping pattern is a bearish pattern and occurs at major tops. A confirmation of completion of pattern is obtained only by break of the neckline and unless that happens, acting on this pattern formation is not a good idea. We are closely observing Nifty movements and a break occurs below the recent low of 4640. Any close below that level will be extremely bearish for Indian equity markets and gradual fall will change to a steep falling market. However, unless we see a close below 4640 we shall continue to move in the red channel as shown on the daily chart.

To support our pattern analysis we are using On Balance Volume (OBV) indicator. This indicator is created by adding the volume to previous cumulative value if the close is above the previous day’s close. The value of volume is subtracted from this cumulative value if the close is below the previous day. This indicator is therefore showing that volumes have been more on the downside than on the upside and the value is at the levels of March 2009. This is very crucial observation as it indicates lot of volumes has been moving on the downside and less volumes on the upmove. This perfectly supports the right shoulder formation of Head & Shoulder pattern which suggests downside volume increases on left shoulder and upside volume decreases. Also OBV is a leading indicator and it leads the prices at important junctures. OBV has given break below the long term support line and so Nifty should do so very soon!

Over short term, as seen on 10 mins chart we are forming a short triangle that should give a breakout upside and index can move towards 5100. However we might be late in the uptrend and so we remain cautiously positive till 5100 levels. A move below 4850 will strongly indicate that the uptrend is complete and the next leg down has started.

In short, the bias is positive over short term but given the cluster of resistances at 5100 levels we would remain very cautious.


  1. Hi Ashish,

    Thanks for a clear overview!



  2. Dude,

    This is purely your imagination. If what you have marked as Right shoulder is a shoulder what are the peaks of January, April and June/July? Please read Edwards and Magee properly.

    Best regards,

  3. Badri, It is no where mentioned that the down move of right side of head has to be exactly like the upmove or the down move cannot be interrupted by the up waves. Also I would appreciate if we refrain from commenting whether I have read Edwards Magee properly or not. There have been many other tools in this blog I have mentioned which is not there in any books. This does not mean they are not valid. Also Mr. Neely went ahead and modified Elliott wave to suit what he thinks is correct. This does not make him wrong and we would not ask him to go and read Elliott wave work by RN Elliott properly. If something as per you is incorrect there is a way to present it so that it leads to a healthy discussion rather than making any loose comments which subdues the spirit of technical analysis.

  4. Ashish,

    Sorry if my tenor offended you. We are in the same page. If you are improving the body of knowledge of TA ,please do not call it "text book example of Edwards & Magee" in that case. Call it Ashish Kyal's H&S pattern an improved version or modified version of Edwards and Magee. This is definitely not H&S according to Edwards and Magee book - still stand by what I have said- Please revisit the book.

    Best regards,

  5. badri,if you r not happy with this blog why are u visiting it and showing your superiority,open ur own blog dude ,not a fly will visit it

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