Monday, June 9, 2008

Nifty Technical Analysis: A Mixed Perspective

The Nifty, as expected, opened deep in the red and a little bit of support was found near 4465, which didn’t last too long, and the Nifty continued to go deeper in the red till it found support at 4412, much lower than the January and March lows. From there a recovery came about but with regular corrections every 50 points or so. Finally, the Nifty ended the day much lower than Friday’s close, but luckily above the three supports we talked about in yesterday’s post.

Nifty 30 minutes - Fibonacci Retracements and Gap

Seen above is the 30 minutes chart of the Nifty. As can be clearly seen, and as has been marked with the double sided brown arrow, the Nifty opened with a big gap of about 78 points. Even though the markets recovered from the lows, they did not go into the price territory of the gap created. A common principle of gaps is that markets do not like them and they want to fill/close the gaps as soon as possible. The Nifty’s last trade took place at 4516 but after calculating the last 30 minutes average the closing price was derived at 4500. One positive visible is that even though the January and March lows were breached on an intraday basis, they were not breached on a closing basis and this breach is not decisive till it is breached on a closing basis. So, we may see an attempt to fill the gap in a day or two.

I’ve also drawn the Fibonacci retracements for the decline from the top made on 16th May till the bottom made today. In one of my previous posts titled “
Another Attempt at Elliott Wave Counts”, I had mentioned that we may be currently in the 3rd down wave of the C wave correction of the bull market. Now, read carefully because there are a lot of assumptions here. Assuming our wave counts of the C wave to be so far correct, we can conclude that the 2nd wave corrected the first wave by 61.8% (not visible in the chart above). And, assuming that we have seen the end of the 3rd wave today, we may expect the 4th wave to correct the 3rd wave by 38.2% or maximum upto 50% but less than 61.8%. This gives us a target of 4700 if it corrects by 38.2% and 4790 if it corrects by 50%, as can be seen in the above chart. But it could also be very well a correction of only 23.6%, in which case 4590 will provide resistance. And assuming that the 5th wave is as large (or as small) as wave 1 then we get a target of 4205 or 4315 depending on where the 4th wave ends. Hopefully, that should be the end of the bear market.

Nifty Daily Chart - Bollinger Bands

That is not the end of the analysis for today. Above, we have the daily chart of Nifty, along with the same trendline and the Bollinger Bands that we had in yesterday’s post. As seen from the chart above, the Nifty did seem to find support at the brown downward sloping trendline (considering that the close was above the trendline), but it is also evident that the close was outside the lower end of the Bollinger Band and this has bearish implications. This means that further downside is possible, as can be seen in January when the Nifty closed below the lower end of the Bollinger Band. It is also possible that a thing like what happened in March may happen again. The relevant period in March has been marked with a thick brown circle where we saw a close outside the band, then a bullish harami and then a bearish candle again closing outside the band and the markets, surprisingly, reversed from there. We have seen a similar pattern this time around where instead of a bullish harami, we have a piercing pattern and then two bearish candles as compared to one that was seen in March. So, whether we are going to see a January pattern repeat or a March pattern repeat is left to the readers’ discretion. I personally feel, it will be a repeat of the March pattern.

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