In the previous post "Nifty and (no) confidence vote" I had mentioned that the Nifty had turned bullish for the short term. We discussed 3 possible scenarios for the uptrend:
1. The current rally may be expected to continue for a while since wave 1 has just started.
2. Nifty may witness a minor correction or sideways movement before further upward movement.
3. Nifty may have an extended rally (only to fall back again to support levels).
After two weeks, Nifty has followed scenario 1.
In the daily chart shown above, it can be seen that Nifty had gained consecutively for 5 days in a row from July 17. In other words, it went up from 3790 to 4539. It could not penetrate the resistance trendline and a down trend had started. The support at 4216 was broken on July 29. However Nifty bounced back strongly forming a "three inside up" pattern i.e. harami pattern followed by a higher close. It is likely to face strong resistance at around 4450 which is only 27 points away from Friday's high. Will it break the resistance trendline? Will it break the next resistance at 4539 to move higher? We'll find out the answers this week.
While looking at price and volume for predicting future price action, the slope of the trend plays an important role. High slope indicates a strong demand but when the supply begins, a sell off is inevitable. Low slope is identified by weakening demand.
The wave 1 obviously had a too high slope. The fact that it failed to break the resistance trendline is also an indication that some correction was on the cards. But, the harami candlestick pattern at the support level confirmed the reversal.
We may consider the formation of wave 1 very important. Given the high slope, the Nifty is likely to consolidate for a few more days before breaking out. In this case, 4159 should act as a strong support. If the Nifty does not break the resistance and falls below that level it means that the short term bullish trend has reversed.
So, basically we are at crossroads - just waiting to see where to go. Monday's trading session becomes crucial in deciding further movement of the Nifty.
The weekly chart indicates that Nifty has managed to retrace more than 38.2% fall from 5299 to 3790. This week's trading range was entirely within the previous week (also known as inside day pattern) which many traders use for market entry. 61.8% retracement works out to 4723.
In the monthly chart of Nifty, last month's low of 3790 was below the support trendline. Though the index has managed to bounce back, this is a warning that more downside exists for long term investors. Moreover, Nifty has closed below the 21 month moving average for 2 months in a row i.e. June and July 2008. This could well be the end of the long term bull market.
1. The current rally may be expected to continue for a while since wave 1 has just started.
2. Nifty may witness a minor correction or sideways movement before further upward movement.
3. Nifty may have an extended rally (only to fall back again to support levels).
After two weeks, Nifty has followed scenario 1.
In the daily chart shown above, it can be seen that Nifty had gained consecutively for 5 days in a row from July 17. In other words, it went up from 3790 to 4539. It could not penetrate the resistance trendline and a down trend had started. The support at 4216 was broken on July 29. However Nifty bounced back strongly forming a "three inside up" pattern i.e. harami pattern followed by a higher close. It is likely to face strong resistance at around 4450 which is only 27 points away from Friday's high. Will it break the resistance trendline? Will it break the next resistance at 4539 to move higher? We'll find out the answers this week.While looking at price and volume for predicting future price action, the slope of the trend plays an important role. High slope indicates a strong demand but when the supply begins, a sell off is inevitable. Low slope is identified by weakening demand.
The wave 1 obviously had a too high slope. The fact that it failed to break the resistance trendline is also an indication that some correction was on the cards. But, the harami candlestick pattern at the support level confirmed the reversal.
We may consider the formation of wave 1 very important. Given the high slope, the Nifty is likely to consolidate for a few more days before breaking out. In this case, 4159 should act as a strong support. If the Nifty does not break the resistance and falls below that level it means that the short term bullish trend has reversed.
So, basically we are at crossroads - just waiting to see where to go. Monday's trading session becomes crucial in deciding further movement of the Nifty.
The weekly chart indicates that Nifty has managed to retrace more than 38.2% fall from 5299 to 3790. This week's trading range was entirely within the previous week (also known as inside day pattern) which many traders use for market entry. 61.8% retracement works out to 4723.
In the monthly chart of Nifty, last month's low of 3790 was below the support trendline. Though the index has managed to bounce back, this is a warning that more downside exists for long term investors. Moreover, Nifty has closed below the 21 month moving average for 2 months in a row i.e. June and July 2008. This could well be the end of the long term bull market.