Friday, September 12, 2008

Double Top Formation in Nifty, Target 4160

The Nifty, contrary to our prediction yesterday, went down today. The short term signs of bullishness were cancelled the moment Nifty opened below our stop loss of 4380. The Nifty continued to move down throughout the day and finally ended the day with a massive 110 point loss while the BSE Sensex lost 338 points in the day. The European markets closed roughly a percent and a half down while American markets at the time of writing were, more or less, flat with a slight negative bias. Crude continued to move down and bounced back from $100 today and is currently trading at $101.60 to a barrel.

Nifty 30 Minutes Chart - Double Top Formation Confirmed

The 30 minutes chart of the Nifty, shown above, shows that not only were the signs of bullishness cancelled on opening (as shown by the green arrow) but the next hour also confirmed a double top formation, which is also known as a ‘M’ formation or an inverted ‘W’ formation. This pattern has been marked on the chart with thick green lines. This double top pattern has its neckline at 4340 and the top at 4520, which means it could have a target 180 points below 4340 which converts to a target of 4160 on the charts. Also shown on the chart is the Moving Averages Convergence Divergence (MACD), which had given a sell signal on the afternoon of 8th Sep 2008, is still maintaining a sell. The stochastics oscillator (shown in yesterday’s chart), which had given a buy signal yesterday continues to maintain a buy position.

On the daily charts, as mentioned in previous posts, the Nifty is moving within a range of 4200-4650. A breakout out of this range should give us a tradeable move in the intermediate term. But will the prices break out of this range this time? Well, we can’t say at the moment because the markets have a mind of their own and will do what they want to do. But the principles of technical analysis tell us that we should follow a trend and that a trend is thought to be ‘innocent’ till it is proved ‘guilty’. In this case, the trend is that the price finds support at 4200. So, we shall assume that prices will find support again near 4200. But Vikas, you just said that the Nifty is now bearish and has a target of 4160. Well, yes, I did say that. The short term charts tell us that the Nifty should, rather may, come down to 4160 while the daily charts suggest that it will find support at 4200. Whenever there is such a situation, we shall follow what the longer term charts say. It is also possible that the Nifty may go below 4200 on an intraday basis and yet close above it. Or that it may go down to 4160 on one day and come back into the range on the next day. While we shall assume the Nifty to find support at 4200 but what the market actually wants to do will be known after the event. We shall change our strategy, if the need be, once the market decides to move against us. For now, it is support at 4200.

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