Nifty has opened on a weak note and it has moved down for the first two days and moved below the 100 day EMA made a low of 4538 and on the next day it recovered dramatically for the next three days. Some of the few point to be noted during the movement of the market during the week are hereunder nifty has moved below the 100 day EMA and this is the first time in the last eight months, it may also be noted that market have been falling for the last two weeks and this the first time that market have fallen for two weeks at a stretch thus indicating that market might has just entered into the bear grip and might continue in future also. Breaking of the 100 Day EMA is a significant event which clearly indicating that bears are slowly gaining upper hand in the market. The recovery of the market after the break of the 100 day EMA is as anticipated considering the magnitude of fall so we should not be carried away by the bounce of the market and treat it as a reversal as there are some levels which it is to clear before the trend reversal can said. This week also marks the first week in the last eight months where market has spent below the 50 day EMA thus clearly signifying that market might have become weak. On Friday also markets have moved exactly to the 50 day EMA and then have reversed from there, considering this it appears that 50 day EMA has become a good resistance level for the market to conquer. 50 Day EMA is at 4830 if nifty is unable to sustain above 4830 then I have no doubt that market is going to test the 100 day EMA in the coming days. There are confluence of moving averages at present which the market has to break above 50 day EMA at 4830 and next the 15 day EMA which is at 4842. So for the time being it appears that it would be difficult for the nifty to move above these moving averages. So in the coming week, especially in the beginning nifty is not able to move above these then we can be sure that nifty has bad days to count. For the time being its better to be on short side of the market with stop loss at 15 day EMA.
50% retracement of the market is at 4860 and 61.8% retracement level is at 4935, nifty is going to get resistance at these levels so these the levels which is to be watched or to be observed carefully as any failure to move above the same would indicate imminent fall in the market.
Elliotte wave analysis:
Now we would discuss the elliotte wave analysis of the markets as per the elliotte there are two options which are available which and which are discussed below:
Here we are discussion on the pattern of the market and also future of the market on the basis of elliotte wave. We are assuming that we are correcting the total rise of the market from the low of 2003 to the high of January 2008. It is being assumed that the fall from the high of January 2008 i.e from 6357 to a low of 2539( start of the current up move is assumed to have started) is assumed to be the wave-A and now we are into the wave-B. As markets have moved above the 61.8% of the total fall of 2008 that alternative of ziz-zag corrective wave is ruled out. Now there are only two options of corrective waves is left they are
i. Flat and
ii. Triangle
We would be discussion the above two alternatives first we would discuss the alternative flat and then the triangle
Option- I – Flat
As far are flat is considered it appears that nifty has completed wave-A of the flat at 2539 from the high 6357 made in January 2008.
As per this it appears that nifty has completed wave-A at 2539 a fall of 3818 points and from there it appears that we have started wave- B and it appears that we might have just completed wave-b at 5174. Flat has three wave and as the name suggests all the waves should be of equal lengths and in actual it seldom happens. The minimum retracement for confirmation of wave-B is 61.8% as per elliotte and in the present case market have retraced more that 61.80% but less that the 80% level if we assume that wave –B has completed at 5174. In the present case if wave –B has completed at 5174 then it’s a weak wave-B and we have all the fair chances of market touching the low of October 2008 or at-least the low of march which happens to be at 2539. If we assume the wave-B has completed at 5174 then the minimum retracement levels of the wave –C should be 38.1% of the wave-A so the nifty should fall by not less than 1455 points so the minimum target for nifty comes to 3720 which is nearly 1000 points from the current level. Generally the wave –C of the flat would be more violent of all the waves this giving an indication that if the assumption of flat is correct then we can see more violent market in the coming months which would be more violent than that of last year. At present it appears that the target mentioned is very difficult to achieve but if the market is forming is flat then we would surely achieve the same. Now comes the one of the difficult question of the time period, wave-A has taken 13 months and wave-B nearly 8 months which happens to be 61.8% of the time taken for wave-A so what should be the time to be taken by the Wave-C the time take by wave-C should be at-least 5 months from the start of the same the wave should run at-least upto march 2010. As as per this assumption we have minimum target of 3720 by at-least March 2010.
Now we proceed to look at the other option which is the triangle. And in my opinion we are forming this pattern i.e the triangle
Option – II the Triangle: The triangle is disclosed in the chart below
If the market is forming a triangle then we have all the chances of markets in a corrective mode at-least upto the end of the next year. And in this case if wave-B has completed at 5174 then I have no doubt the nifty would not move above 5000 at-least upto the end of the next year. If we are forming a triangle then the volumes would be decreasing as the time goes by and the volumes would be continually decreasing upto the end of the next year and all would lose interest in the market as market would move no where and once wave-E is completed then the market reacts with bang and we would go on to make a new high thereafter. In this scenario we can be sure that we would not see a new high at least for one to one and half year. This does not augur well for bulls but we have to live with it. The projected targets and the pattern is indicated in the circle in the chart. Now everybody would be wondering what would be the probable targets for the waves-C,D,E. One of the peculiar feature of the triangle is that market moves no where and it will just move in a band and here the band here appears to be around 2500 to 5000 i.e. nearly 2500 points. One of the pre-requisite of the triangle is that each successive wave will retrace at-least 50% of the previous wave and would take the same time i.e.50% of the time taken by the previous wave. It my be noted that wave –A is from 6357 to 2539 a fall of 3818 points and wave-B is from 2539 to 5174 a rise of 2635 points which is more that 50% of the wave –A so the first qualification is achieved. So if we assume the wave-B has completed 5174 then we would be seeing the market fall by at-least by 1350 points so the target for nifty again comes to some where around 3700-3800 levels. It may be noted that this is the minimum target which has to be achieved by the market thus giving an indication that further downsides from 3700 are not ruled out after completion of wave-C wave D would rise at-least by 50% and again wave-E would fall at-least by 50% of wave-D. So if we assume that each wave take only the bare minimum time then we can see nifty in this range for at-least 8 months from now so as generally the minimum targets generally exceeded I have no doubt that we would not enter any major bull market at-least before March 2011. In case of a triangle generally wave-E takes longer time and it would be most boring of all the waves. As if falls of lesser nor as far points are concerned by it takes more time thus making the market unattractive.
So as can be seen from the above that what ever may be the alternative we are in for a bad news for bulls. In both the options we are going to see more damage to stocks in coming months so considering this it would be better for us to take profits from the table and sit in cash and wait for a better opportunity to invest.
Directional Momentum Index:
As have been indicated in the previous weeks also DMI is indicating weakness for bulls and strength of the bears. DMI has been moving continually after negative break out i.e movement of –D1 over +D1 thus indicating the bears are gaining strength. DMI has moved from 24 last week to above 30 and now placed around 31 thus giving an indication that the down ward movement would increase over period of time. So DMI has to be watched carefully as this would give a clear indication as to whether bears are gaining strength or losing strength. So its pointing towards bad days for bears.
Pivot Point Trading Strategy:
I am not providing any table this time but I would be discussing the same nifty has moved as indicated in the table given last week. Nifty stayed below the pivot and moved towards S1 and then jumped towards pivot and reversed on just moving above the pivot. So for the current week the pivot is place at 4723 so any breach of the same would take the market towards 4611 and if it is broken then we have chances of seeing 4450 and if it stays above 4723 we have chances of seeing 4909 there after 5021. So you can trade accordingly:
Turtle Trading:
20 day phenomenon has given a sell indication at 4904.
Current trend - Sell
Go long above 5182
Square off – 5054
Go short below: 4538(add Positions).
ATR - 104
M.Sri Mahidar
Sunday 7th November 2009 time 17.35 IST
Trend is Friend.
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