Weekly technical Analysis for week ended 31st July 2010.
Nifty movement during the week is clearly indicating that bulls are finding extremely difficult to take the market further up. It appears that we might move down further then only move up if any. During this week nifty has formed 3 red candles and 2 white candles indicating that the bears are having upper hand during the week. Nifty has closed above 5400 during the earlier week and has failed to close above it in the immediately following week which is clearly indicating that 5400 is the formidable resistance and it is not easy for nifty to go past it at-least during the current rise. The failure to sustain above 5400 is a clear indicating the bulls do not have strength to take the market above 5400.

I have been mentioning over the past so many months that markets have been rising for around 9-10 weeks and have been falling for 5 weeks there after only exception being the last fall where the markets have fallen for 6 weeks. And this time also time taken to retrace the 6 weeks fall was nearly 8-9 weeks which happens to be more that the time take for the earlier fall. So it is clearly giving an indication that we are not going to runaway from the trading range of 4700-5400. So till the faster retracement of earlier rise or fall takes place we are not going to see a major move in either direction. So we have to keep a watch on the faster retracement for directional change in the market. I have been pointed during the last weeks update that it would not be easy for the market to go past 5400 and also decisive move above it as we have taken longer time to retrace the fall and it appears that we may be headed down wards as indicated at-least for the short term. As per time series analysis we have completed 10 weeks of rise and in the 10th weeks which was the last week we have started to move down, as per this we should further move down for at-least for another 4-5 weeks. So bulls better watch out.

It can be seen from the above chart that nifty is trading in the range indicated by two parallel lines from that last nearly one year. And it has been forming higher tops and also higher bottoms which is clearly indicating that the trend is up. One of the point to be noted is that even though nifty is making a new high in each of the three raises indicated by arrows. It can be clearly seen in the parallel lines that the parallel line is sloping down and on each occasion the line is to be adjusted to down side. In each occasion the bulls are able to take the market to the new high but are failing to take it to the resistance levels. The distance between the original trend line and the new one are shown by double headed arrows in the circles. This is clearly giving an indication that even though bulls are taking market to new high they are failing to take it to the resistance indicating clearly that they lack strength.

It can be seen from the above chart that nifty has broke the one year trend line (blue line) and also the last 9 weeks trend line, both there are indicated in the white square on the left has side top of the chart. We can clearly see that nifty has broken below the nine week and also the one year trend line which is a clear weakness the market sentiment and if technicals are to be believed we should move towards the yellow line which happens to be the support line for last three occasions and this happens to be around 4950-4900 levels so nearly 400 points from the current levels. Will the market fall to these levels? Technically speaking the answer is yes.

The above chart is of India VIX, it behaves inversely to that of the market. if the market moves up it moves down and when it moves down market moves up. It can be seen from the above chart that VIX has been moving in a expanding triangle pattern from nearly one year. Recently indicated by circles it can be seen that it has failed to moved towards the sloping support line which happens to be at 12. It may also be noted that while it is slowly sloping down forming lower lows the RSI of the same is forming higher lows i.e. positive divergence, which is clearly indication that we can see VIX reversing at any point of time. As it has failed to moved towards the support line at 12 we can easily see it moving upwards towards the resistance line which happens to be at around 35 levels very swiftly. So it is also indicating probable reversal of the trend in coming days.


Positives for Nifty:
§ Market is above 200 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.
§ Daily MACD has given a sell signal
§ Weekly MACD is about to give a sell signal immediately after giving a buy signal which is an indication of weakness
§ +D1 is moving down sharply and –D is moving up sharply indicating that bears are started to have upper hand.
§ DMI is also moving down.
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. This time it has failed to achieve the same.

Directional Momentum index – (DMI)

Currently +D1 is above –D1 and +D1 and +D1 has started to move down sharply and –D1 is moving up indicating the bears are gaining upper hand swiftly even the DMI is moving down it has moved from around 30 to 27 levels and is sloping down so indicates weakness.


M.Sri Mahidar
Sunday 1st August 2010, Time 19.31 IST
Trend is friend