Nifty during the week opened on slightly strong note and there after became weak and was weak for the whole week and closed at 5997 a loss of nearly 150 points. The move during the week was significant on many effects. Nifty fell for continues four days which was the first time in the last eight months, nifty moved below the 15 day low EMA which is only third time during the last eight months. Another very very important thing is that nifty has broken a trend line drawn from the low of march indicating that the trend might have reversed. This is the first time in the last eight months that nifty has broken the trend line. All these have happened after negative divergences over months so this cannot be ignored and also it happened in the eight months which again happen to be a Fibonacci. So all these factors cannot be taken lightly. As has been mentioned above nifty has moved below 15 day low EMA which is at 5005 so now we have to see for an opportunity to short at every raise. In nifty move above that level the strategy should be reversed. Another important thing which should be noted is that with the fall of this week the buy indication in nifty has converted into sell signal which clearly indicates that trend has reversed. Now the important support for the nifty is around 4900 and also at the 50 day EMA which is at 4853. Nifty might take support at the 50 day EMA as earlier when ever nifty has gone below the 15 day low EMA it has taken support at the 50 day EMA and reversed with a vengeance. So we have to be watch full when ever nifty reaches the 50 day EMA level. Any breach of the 50 day EMA should be taken as an opportunity to come entirely into cash and try to short only and no other activity. Now we have to watch out for one important factor i.e. the faster retracement of nifty below 4600. It took 28 days for nifty to move from 4600 to 5176 and it should take more days to move below this to keep the uptrend intact so we have to keep a close watch of 4600 any breach of the same in less that 28 days would confirm the uptrend is over and also down trend has started. You might be thinking that whether I have to wait so long to take a decision on whether the trend has reversed or not. It is not the case but just see the higher highs and higher lows and vice versa. Till now nifty has been making higher highs and higher lows but we have to see whether in the raise which comes after the fall is going to make higher high or not. If it makes a higher high i.e if it moves above 5176 then we can be sure that the trend is intact but the rise does not take nifty above 5176 then we have formed a lower low which is the first indication of reversal and it would be confirmed when it makes a lower low. So keep a close watch on the movement on the same.
It may be noted that any breach of 4700 should be taken as an opportunity to come into cash no matter what the stock is as it will signal the end of the current Bull Run. Currently good support appears to be at 4900. In my view we should start booking profit once 4900 is violated.
Positives for the market :
• Nifty is still above 50 day EMA.
• On weekly charts TRIX and MACD are in buy mode and are just about to give a sell signal.
NegativeS for market.
• The trend line drawn from march low is broken
• Nifty is below 15 day low EMA.
• -ve divergences still exists in oscillators – ROC, RSI, Elder bull ray
• Volumes are not still increasing.
• DMI has given a sell signal indicating the bears have just gained upper hand.
It can be seen from the above that the –ve factors are increasing and positive factors are decreasing which is clearly indicating that indices are becoming week.
Elliott wave analysis:
In previous updates I have clearly indicated the wave structure and there appears to be no change to my wave structure so nothing new to mention in this week. As per elliotte wave structure I have given target of 5195 and 5520 and both targets are yet to be attained and we have chances of seeing at-least 5195 in near term if it is taken out then we have all chances of nifty moving towards 5520. during the week the high made by nifty was 5176which is just short of the 5195 by 20 points and started to move down this is not an good indication if this is the third wave failure then it indicates the weakness in the market and if third wave of higher wave has just started the we might see a larger cut in the market that every body is expecting. So better be carefully with the longs.
Directional Momentum Index:
DMI is has moved from around 27.04 to 23 but during the week it has moved by buy indication to sell indication i.e –D1 has moved up and +DMI has moved down and both are moving down which is clearly indicating that momentum is down and that the trend is neutral as all the three i.eDMI,+D1 and –D1 are moving down.
Pivot point analysis:
Pivot point for the nifty is at 5049 and nifty is below this indicating that the trend is atleast for the time being weak nifty has to move above this to indicate strength and any breach of the same on upper side has chances of taking it to 5129. if nifty fails to move above pivot then we have chances of seeing 4916 and if it is broken then 4836. so keep a close watch
Turtle Trading:
Turtle Trading - 20 day Phenomenon (gave buy indication at 4743)
Current trend – buy
Go long above – in buy mode
Square off - 4921
Go short below: 4904
ATR at 80
M.Sri Mahidar
Sunday 25th October 2009 Time 7:50:32 PM IST.
Trend is friend
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