Weekly technical Analysis for week ended 24th April 2010.
Nifty opened on a weak note, made a low of 5160 and there after started to move up and virtually closed at the high point of the weak. The close of high point of the week is an indication that bulls might has gained upper hand and they might try to take the market higher during the coming week. In the weekly charts it has formed a bullish hammer which is giving an indication that that the bulls appears to be stronger and might try to take the market higher towards 5400 during the week. The coming week being the settlement week we might see some action during the first two days and after that it might just see market steady and there after main action would start on Friday after the settlement day.
As per the time series analysis, I have mentioned that markets have been raising for anywhere between 10 to 14 weeks and there after correcting for 3 to 5 weeks. But this time markets have risen for 9 weeks and in the subsequent week the markets have corrected and immediately in the following week indicating that the bulls are having strength. It is giving a indication that either the uptrend is not over and we might see the market move for another 2 weeks to complete 14 weeks. As the market has corrected for only one week instead of 3 to 5 weeks as in the previous corrections, this is against the normal phenomenon in this rise, giving an indication that we might see a blow off rally where in markets might move very swiftly probably in a vertical rise that too on heavy volumes. So we have to see what would transcribe for the markets.

This week I would be furnishing an interesting aspect on nifty which is Wolfe Wave (WW). It was developed by bill wolfe and has been in application for over decade and half. The interest feature of the Wolfe wave is that the accuracy rate is around 80-85% this has been indicated by the Wolfe wave practioners. One of the interesting feature of the WW is that it is it also give the target which has to be achieved. Wolf wave consists of a series of five waves and after that the market reverses its position and the its trend and achieves the target derived by the five wave. A trend line is drawn from start of the first wave through the end of the 4th wave which when further extended gives the probable target to be achieved. The remarkably the targets are met. The pattern to be effective the WW pattern should be tilted in the direction of the trend. WW can be applied for any time periods minute charts, hourly charts daily, weekly or monthly charts.
Nifty has formed a WW in the from May 2008 and completed the same at the low of the Lehman brother i.e at 2252 and gave at target of 5300-5500 and surprisingly we are nearly at that level. The WW is indicated in the chart below:
It can be seen from the above chart that the WW has formed over a period of six months and it has give a target line which gives a target of around 5300 to 5500 and remarkably see that till now we have not violated this target line. Three times it has failed to break above the trend line i.e the target line. And we can surely say that the target has been achieved. It can be seen from the above that the WW has been sloping down wards which strengthens the higher probability of the achievement of the target. One of the important aspects of the WW is that the 5th wave generally breaks the 1-3 trend line and generally is a blow off rally and it gives a indication that the trend line has been broken and break out has happened, this is where everybody is trapped and remarkably the market reverses its trend and you know what happens. You may be wondering why I have presented this here. There is a reason for this which would unfold as you proceed further.
You would be surprising to note that nifty now appears to be forming a WW in daily charts which has been shown in the chart below:

It can be seen from the above chart that we might be forming WW and we appears to be forming the fifth and final wave. It can be seen from the above that the WW pattern is slightly in the direction the trend i.e raising up which further strengthens the probability of achievability of the target. It can be seen from the above chart that WW pattern has been forming from middle of October and is still continuing, till now we have completed nearly 6 and half months and might take another one month or so for completion of the same.
It can be seen from the above chart that we might be forming the fifth and final wave of the WW pattern, the completion of the same the market might turn downwards. One of the peculiar feature of the 5th wave in WW as has been explained earlier is that it break above the 1-3 trend line which gives an indication of break out. In the present case as we are in the 5th wave we might in all probability see the 1-3 trend line being broken, the trend line currently appears to be around 5450 -5475 levels any break out above that would confirm the break out, out of the pattern and we might see in all the news papers or channels giving that the six months trend line has been broken we the market is headed upwards and probable new high. But if WW pattern is to be correct then we might not see a new high but we might see a new 52 week low. Once the price breaks out out of 1-3 trend line and then break below it would confirm the end of the WW and confirms the achievability of the target. so now the question arises as to what should be the probable target of 5th wave. Generally the 5th wave would be 127% to 162% of the wave -4. Wave-4 was from 5310 to 4675 a fall of 635 points so the length of the 5th wave should be any where between 806 points to 1028 points from 4675 so the target comes to anywhere between 5481 and 5703 so if nifty reaches this level then we should be carefull as market might turn at any point of time at these levels. We may see that once the 1-3 trend line is broken which would probably be broken in the coming month we might see everywhere in the media that six month trend line is broken indicates strength and we might see a new high or so but actually the reverse happens and we migh see a new 52 week low. So the break of the 1-3 trend line is a bull trap and most of the investors are caught in the trap as everybody would become overly bullish which generally results in market making a top. So in the coming month we might see the market rising very swiftly as we are nearing the completion of the 5th wave and which also happens to be final wave as per the elliotte. So if WW is to be believed we see further rise of around 300 points so be prepared for the same. As I have indicated the probability of the WW is 80-85% so we have all chances of achieving the target, which appears to be around 3900 for nifty.
Positives for Nifty:
· Market is above 200 day EMA.
· Market is above 50 day and 100 and 15 day EMA.
· Weekly MACD is in buy mode (about to give a sell again).
Negatives for nifty:
· Daily MACD has given a sell signal.
· Weekly MACD is about to give a sell signal.
· Weekly TRIX are still in sell mode.
Directional Momentum index – (DMI)
DMI is moving down and +D1 is about to move above–D1 indicating strength of bulls. As DMI is moving down it is indicating that bulls are not as strong as they appear to be.
M.Sri Mahidar
Sunday 25th April 2010, Time 19.15 IST
Trend is friend