Nifty surprised every body and moved up to make a new high and also close at the new high of 2010 and also 52 week high. The movement during the nifty has surprised every body and also it successfully conquered 5400 which it was unable to do it for the last one year onwards. The break out and close above 5400 would give a new horizon for the nifty and has further chances of moving up. We have to see in the coming weeks whether the bulls would be able to maintain nifty above 5400. Till nifty stays above 5400 we have chances of seeing further highs for the market. So be braced for further ups if 5400 is held during these weeks. We have been discussing for last so many months that nifty has been moving in a band of 4700 to 5400 and whether this move above 5400 has broken above the trading channel? You will be surprised to know that nifty has still not broken out of the trading barrier. In the daily charts it has not still broken above the sloping trend line drawn from the previous two tops and it has to move above 5550-5600 to break above this. So we have to still move some ground to cover to clearly break out of the trading range. We have been seeing from the last one week is that nifty is in a range and has been forming higher highs and also higher lows. So still this trend is maintained, the up trend is intact and further upsides are not possible. So bulls would rule till this higher lows are maintained.
We have been discussing about time series analysis for last so many months and it has been clearly indicated that every rise is for nine weeks to 10 weeks and the every fall is for 5 weeks except for one is may fall. And by the end of this week we have completed 9 weeks so as per time series analysis either we stay here for one week or we have to correct from here which should continue for at-least 5 weeks. Whether we correct or rise no body can tell. One theory which is favoring the time series analysis, I have been mentioning that market has falling very fast and the rises have taken more time to recover the fall, i.e the markets have fallen for 5 weeks and it has taken 8-9 weeks to recover the entire rise, till this trend is maintained nifty is not going to break away from this range and we would be still in this range even if market moves slightly up. This means that till the fall is not retraced in shorter time preferably in less that half the time, we would be in this trading range only. The higher time taken to retrace the fall is giving a clear indication that bulls lack strength at present time even though they are indicating strength. This is might be puzzling you but if technicals are to be believed its true. Now you might get a doubt that what if the market breaks out of the trading range. As far are technicals are concerned and also time series analysis even if the markets break away from the trading range the upsides should be limited and we have all possible chances of markets correcting heavily if the market break away from the trading range and again come back to the trading range. One thing is sure if we break away from the trading range we can see a blow off rally as seen in the end of 2007.
You might be wondering that whether I am a perennial bear, not it’s not the case I am only trying to interpret the markets technically and most of the time the technicals are right. They are wrong only twice one at the top and another at the bottom. So we have to seen what happens.
Another point which is pointing towards the upward movement of the market is that the break above 5400 was on negative divergences of oscillators. Generally new high should normally and not –ve divergences.
Now we come to elliotte wave time periods. We have made a new high in the 17th month, and if we apply the time period analysis as per elliotte. We should see for Fibonacci immediately following the period of high and the next immediate Fibonacci comes to be 21. So we have chances of seeing markets trading in this range only for next three to four months. Which happens to be around 16 weeks. So considering this we have chances of seeing the markets in this trading range only for the next 4 months or sixteen weeks. You might be wondering if we have made a new high then we should continue to move up. But as for elliotte wave also the last wave should be retraced in faster time period, and till now this has not happened thus indicating that we might not run away from the current level. And if we consider 16 weeks, then we have all possible chances of one fall of 5-6 weeks and also one rise of 9-10 weeks whether we will see one fall and one rise, as per time period analysis of elliotte wave we have all fair chances of seeing it. That means we have all possible chances of markets falling that then raising. Whether this is possible, technically it appears to be so. We have to see it differently when market itself behaves differently till that time one fall and rise are not ruled out. I did not have the time to work out the elliotte analysis after the new high. I would try to work it by next week.
It can be seen from the above chart that we are still in the trading range, indicated by the black back ground and we can clearly see –ve divergences at the top twice at the top. Whether the –ve divergence would translate into fall surely but when only markets can tell. So till 5400 is held no problem for bulls.
Positives for Nifty:
§ Market is above 200 day EMA.
§ Market has moved 50 day or 100 day EMA.
§ Market has moved 50 day or 100 day EMA.
§ DMI has moved above 20 indicating strength of bulls.
Negatives for nifty:
§ The rise is on –ve divergences with MACD histogram and also RSI.
Elliott wave:
In Feb-March I have indicated in my Elliott study that it would be difficult nifty to move above 5415 and 5585 and now one is violated and we have see whether the second one would be violated. Wait and watch
Directional Momentum index – (DMI)
Currently +D1 is above –D1 and +D1 flat indicating that bulls are at least having control of the market. As has been indicated earlier DMI has moved above 20 and is moving up indicating the strength of the bulls and till the DMI move up along with rise in market we might see a blow off rally. If DMI moved down then we can see market drifting down. In the last one years along with the rise when ever DMI has moved to 25 to 30 levels the trend has reversed whether this would happen now also we have to wait and see. This week DMI has moved from 25 to 28 indicating that bulls are gaining upper hand.
M.Sri Mahidar
Sunday 25th July 2010, Time 20.30 IST
Trend is friend
