During the week nifty opened on a strong note moved up towards 5700 levels and immediately on next day it moved below that level and moved down swiftly down wards on volumes indicating weakness in the market. In the beginning of July also the market has moved above 5700 and thereafter immediately next day it moved down towards 5500 and this time it has moved below 5500 and not placed at 5482 thus forming a lower low for the first time after June 2011 indicating that bears were successful in taking the market down. Another point to be noted is that nifty is flirting the 200 day EMA. From the month of march onwards nifty is moving above 200 day EMA and there after it moved down and closes below it, but during the last two times it reversed immediately after moving above 200 day EMA. This time also nifty has moved above 200 day EMA and immediately moved below it that too with gap down indicating weakness in the market. Now the question comes what does it indicate when market sell below 200 day EMA, traditionally it is believed that bulls rule above 200 day EMA and bears below it, it implies that bulls are not supporting the market and then are not prepared to buy above it which clearly indicates that bull are not optimistic about the market and it clearly indicates that bears are going to have field day. Generally above 200 day EMA long/medium term funds would be in the market and below it they sell into the market or get out of the market. So as of now it appears that we might be heading down wards unless and otherwise the market proves other wise. so when the market would prove other wise, firstly any moved preferably closing above the sloping trend line drawn from November 2010 high and secondly close above 5750 and preferably above 5950. So till that time bears would be ruling the market.
For the coming week/month, the market has all the chances of giving a clear direction and we might move in that direction of break out in a big way. During the last two to three months nifty is stuck between 5200 and 5700 and during the last month it is stuck between 5400 to 5700. The narrowing of the market is a good indicating as it indicates that market would eventually has to give break out and the narrower the band becomes the larger would be the break out whatever the direction is. Now the question that might come to your mind is in which direction be the break out, as the market is refusing to go above the 200 day EMA it appears that there are all the possibility of market breaking on the down side, but don’t take is for granted we have to wait for the price to confirm and them follow the trend time.
Another thing which is very important for the coming weeks is that nifty is again near the two year trend line which is indicated in the chart below. It can be seen from the chart below that nifty has been taking support at that trend line will it take support this time also? Only time would tell the difference. One difference during the last two years is that previously whenever the market has taken support at the trend line it has moved above and made a new 52 week high, but from November 2010 onwards the scenario has changed, whenever it has taken support at the trend line it moved up but did not make a 52 week high but made a low high and this thing is continuing till now this time also it has made a lower high. As the trend line is sloping up still market is forming higher lows on the down side and lower tops on the upper side this is clearly pointing that the range is narrowing and as lower tops are forming it is clearly indicating that we may be in for forming of lower low for the first time after so months. So be prepared for it. Another point to be noted is that during the previous time when ever the market was near the trend line MACD as nearly the oversold and has give a buy signal but this time there is a difference MACD has give a sell signal on daily charts so it is also pointing towards break of trend line. What ever may be the case wait for the price to confirm and then only jump.
Positive for the market:
· Weekly MACD has given a buy indication.
· Monthly stochastic is in buy mode and is about to give a sell signal.
Negatives
· Nifty is trading below 15 day, 50 day, 100 day and 200 Day EMA.
· 50 day EMA is below 100 day EMA is below 200 day EMA indicating extreme weakness.
· Daily MACD is in sell mode,
· Daily and weekly stochastic is in buy mode.
· Monthly MACD is in sell mode indicating weakness in the market.
Elliott wave analysis:
In previous weeks I have indicated that we might be forming an expanding triangle and it appears that we might have completed fourth wave and it appears that we have started the fifth wave and it appears as per the current wave structure and we might have completed the 1st wave of the fifth wave and it appears that we might have completed 2nd wave of the 5th wave and it seems that we might has started the 3rd wave of the 5th wave and generally the 3rd wave would be most violent and devastating and the longest, which is being indicated by gap down opening. The first wave of the 5th wave was around 750 points and the second wave was nearly 61.8% of the first wave and wave would normally be at-least 161.8% of the first wave so we have chances of correcting around 1250 points from the end of the second wave of the 5th wave which happens to be around 5700 levels giving us a target of 4500(o no) we might doubt this target but if the pattern is correct then we have all chance of correcting. The this pattern is pointing towards a very weak picture. So we have to wait till the pattern is negated till then we can hope the targets to be achieved.
Generally in Expanding triangle pattern the fifth wave goes near or below the trend line and the low the trend line is more frightening for bulls around 3800 levels really scary. Nearly 80-90% of the time it happens. So till it is proved otherwise we can expect these levels. or till EW pattern is violated b movement above 4th wave. The latest wave count is give below
M.Sri Mahidar
Trend is Friend.
Sunday, July 31st 22.11 IST
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