Thursday, August 14, 2008

Head and Shoulders Failure Or Just A Pullback?

Friends, I would like to apologize for yesterday. I had gone out somewhere and when I came back home, some guests were over and left well past midnight and then it was too late to study charts and share my analysis with you. Today again it is very late in the night, yet I came back to share with you my thoughts because I do not want my readers and subscribers to go without analysis for two days in a row. Today is a very happy day for me. If you see in the left sidebar, on the top left corner first of all, a clock is there below which is a link to subscribe to my daily newsletters via e-mail or through a reader. If you can see the orange counter, you would see that I have now more than 100 subscribers who are getting my daily analysis by email. I’m sure that with the support and co-operation of my readers, this number would continue to grow by leaps and bounds. (Amen!!!)

The Nifty, over the last 6 days has given a total range of less than 200 points. Range of 6 days is calculated as the difference between the highest and the lowest price in these 6 days. This works out to a nearly 4% range in 6 days. Looking at the closing price, it has just risen by 12 points in the last 6 days. There seems to be something wrong somewhere. As I mentioned in my last post I am just not convinced with the rise even after so many positives have been seen. I asked for an opinion from my readers about what they feel about the markets in different time frames and the opinion seems to be divided. Sanjay has given a very interesting observation that while he expects the market to come down in the next 2 months, he is very optimistic about it with a 2 year time horizon in mind. I somehow tend to carry the same view as Sanjay. Once we have seen the worst of the world recession, there would be a new beginning and we would touch much higher highs than what were seen last time but the recovery, initially, would be a gradual process. A 800 points rally in 2-3 weeks is not a sign of a new beginning. Piyush Modi also has left a very good comment on the same post on my old blog and what he says does make sense. Fundamentally, things do seem to be looking a little better but it is too early to say whether this improvement is only temporary or it is for here to stay.

Nifty Daily Chart - Pullback to the Neckline?

Above is the daily chart of the Nifty. As can be seen, the Nifty had clearly broken out of a bullish head and shoulders pattern a few days ago but a decisive breakout like candle was not seen. In the absence of such a candle, it is difficult to say whether the breakout was genuine or not. By the looks of it, it does look like a bullish head and shoulders pattern and one look at the chart shows a clear breakout. But with no big volumes, after the breakout, this pattern could easily fail. It is too early to say whether the last two days of red candles is a failure or a pullback to the neckline. If the prices do find support near the neckline and turn around, then it would be considered as a pullback only. I have drawn the neckline as the solid green line but the market could very well consider the neckline to be placed lower near the dotted green line. Expect support between the 4350-4450 range. If these levels are broken then this pattern would be considered as a failure and we should be ready to see newer lows.

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