As has been expected, nifty has opened on a weak note and continued to slide whole during the week and has virtually closed at the low of the weak. It appears that the bears are gaining upper hand in the market. The markets have corrected after completion of 13 month, and we are in the 14th month and about to complete the 14th month. So have we started the down turn which at-least I have been waiting for at-least to prove Fibonacci correct. We have to wait for the market to further confirm the same. One of the noticing features of the fall during this week is associated with heavy volumes. The volumes are greater than that of the rises indicating that bulls are having strength and also the some heavy selling is going in the market on each fall which is not a good indication and this gives an indication that we can expect further down sides in coming weeks or months. All the major technical indicators are pointing towards further down sides in the markets. As per me it appears to be either outside the market or on short side but technical are pointing towards not be long. One of the noticing feature of the market during the week is that nifty has moved below 15 day,34 day, 50 day and 100 day MA and also 15 day EMA has moved below 34 day EMA, indicating that bears are having upper hand and are trying to take the market further downsides. This is the first time from March 2009 that Market has moved below these MA in one week only, clearly indicating that bulls are not giving any support at these EMAs. Generally indices or prices is above MAs these offer support and this was observed in previous occasions also but this time it was different and MAs did not offer any support especially 50 day and 100 day EMA which clearly signifies bears have gained upper hand and bulls efforts are going in vain. So all these are pointing towards further down sides are not ruled out. we have to not see the weather nifty would make lower low or not. Any movement of nifty below 4675 would indicate formation of lower low and then the market would tank further down sides. You might be thinking that I am a primarily a bear as I appear to be bearish for the last three months even though market was moving up. I was just giving what the technical’s were saying. For the last three months the market was indicating weakness but bulls were successful in taking market up but the weakness was visible in decrease in volumes on the rise which clearly gives a signal that no one is betting on the market is going up. I have been indicating from the last few months that the falls appears to be severe that the rise. The fall was taking three to five weeks and it was taking 10 to 11 weeks to erase all the losses clearly giving an indicating that bulls were taking enormous effort to take the market, but bears were successful in taking market at each stage. This phenomenon has been ignored by everyone as it seems that they we prepared to take bet on one side only and not reverse.Even though investment analysts we betting on market moving up they were doing the reverse in the market which was clearly visible. I appears that retail investors might has caught un aware this time also.
As market has broken below 100 day EMA, 200 day EMA would generally offer support, and market has in the last fall in Jan 2010 taken support at that level. We have to see whether 200 day EMA would offer support or not. 200 day EMA is at 4875, so this is the levels which has to be closely watched. Any move of the market below this levels would result in heavy selling as long term investors would abandon the market.
Positives for Nifty:
· Market is above 200 day EMA.
Negatives for nifty:
· Nifty is below 15 day,50 day and 100 day EMA.
· Daily MACD has given a sell signal.
· Weekly TRIX are still in sell mode.
· Weekly MACD has given sell signal immediately after giving a buy signal indicating extreme weakness in the market.
· DMI has moved above 20 presently at 26 indicating strength of bears.
It can be seen from the above chart that nifty has broken the trend line from June 2009 in January 2010 and thereafter it has risen and touched the sloping trend line which offered as resistance, and market has just touched the trend line and there after started to fall indicated by a arrow in the chart. This is the perfect technical reversal which cannot be ignored just like that. The period of trend line which is around 8-9 months cannot be ignored as it is pointing towards further down sides. So wait for the market to give a buy signal till then just enjoy the ride. Its wrong to catch a falling knife.
THREE FAN PRINCIPLE:
Three fan principle which I have discussed in my earlier weekly update as on 3rd April 2010. At that time I have said that till nifty stays above the third trend line there is not problem for bulls. And this week it has broken below the third fan and the break down was on huge volumes as indicated by arrow. This gives a very clear indication that we might have made a Short Term (medium term) top. Are u surprised with this yes your have read right we might have formed a top which might not be broken so easily. As has been indicated by me earlier, this is one of the powerful trend reversal patterns. If it happens in a down trend it will signal the start of the bull market and when it happens during the end of the bull market it signals the start of the bear market. This time it has happened when the market was raising, indicating that we might has just completed our up move and we might have just started a dowered move. It means that bull run might have completed and we might have just started bear run which might run for weeks or months. If this pattern is correct we might not see the high of this year being taken out.
Now comes the question, how many months this fall if started would last or what would be the target. there are three types of targets which can be arrived at. One is as per Elliott wave, one as per historical corrections and other as per the three fan principle. The target as per Elliott wave principle depends as per the pattern which it would be forming which I would discuss in the Elliott wave explanation below. If we see the historical major corrections, market when ever has made a major top they have corrected anywhere between upto or between 50-61.8% of rise. In the present case nifty has risen from 2539 to 5400 so a rise of around 2860 points so we might see a correction of around 1430 or 1767 points so the targets come to around 3969 or 3631. These targets as of now appear to be impossible but if the correction has started then I have no doubt of nifty meeting either of these targets.
Now we come to the targets as per the three fan principle, as I have said it is one of the power full trend reversal indicators and the targets are also very bearish and these as of now appear to be impossible and everybody would not believe. So you might be thinking of what the target is, the principle of three fan principle states that the price should reach at-least the starting point of the three fan pattern. In the present case the starting point of the three fan patter is around 2539, considering this we should reach the target of 2539. Can’t you believe it, even I cannot believe it but the principle states that only even, I wish it should not reach there even if it reaches we would have very good opportunity to buy stock we should not say buy they would be available at steal.
You might be wondering, whether the target as per the three fan principle is achievable or not. I have in my limited experience has seen that whenever the three fan principle pattern is confirmed in the price they have met the target. I have seen this pattern in a bear market so that targets have met. The first time it happened in 2003 when nifty was around 1200 it broke the three fan principle and it went on to make a new high during that year. You might be having doubt as to whether in when it turns to bear market the targets are achieved or not. For that I come to the example, if you are following vivek patils weekly technical analysis there if anybody has seen the Dows chart of 1987 it clearly shows the formation of the three fan principle and on confirmation of the same dow has met the target as indicated as per the principle. I cannot reproduce the chart from there as its in viveks technical analysis. This also confirms that we has chances of achieving the targets.
But first we will see whether we 3900 is achieved or not then we would see the final target.
Elliott wave:-
In my weekly technical analysis as on 27th March 2010 I have indicated that as per Elliott in case of first wave extention it would be difficult for the market to move past 5420 and till not market has not moved above 5420 it virtually made a high of 5399 but did not go past 5420 thus confirming that pattern and also target. this is also giving an indication that we might have topped out. The targets as per Elliott would depend on the pattern which it is expected to form. I would be furnishing the same after I have completed the same till that time enjoy the ride, probably bear ride.
Directional Momentum index – (DMI)
+D1 has moved above –D1 and has reached 37 and also DMI has started to move up and it has moved above 20 during the week indicating that bears have taken control of the market and further down sides are not ruled out. currently DMI is placed at 26 and is moving up any further move might take market further down.
M.Sri Mahidar
Sunday 9th May 2010, Time 18.48 IST
Trend is friend
