In last week’s update, I have indicated that even though the market was moving upwards I have indicated that the undertone appears to be week as the close on was at the low point of the day and this week it appears that this week the market has proved us right. So it clearly appears that the bears have taken control of the market. We might given reasons for such weakness, like US, EOROZONE crisis, but technical’s were indicating the same for long time now and if any body is following this weekly update then, the current market fall might not have been surprise for them. Then you might be having a question, as to how technical’s show this, technical’s only show the perception of the investors towards the market and its we have to infer the same. technical show that there is something wrong in the market or going to be wrong and then the news flows after some time. Generally price discounts, 6 months ahead especially during the turns. As you can see the market has turned down in January or so and there after the market started to fall vigorously in July etc., and also note that news have also become very negative during this period only. I have seen in my short stint as a technical analyst, that price destruction occurs first and then news flow. So when the prices or pattern shows something is wrong with the market or the patterns are now comfortable then its better to respect that, and be cautious with the market as it our utmost responsibility to protect our capital. Now we would come to the market.
This week the market opened slightly low and there after moved up towards 5200 levels and from there it collapsed on the last two days of the week. It can be observed that the rise takes longer days and the fall is less that 50% of the time of rise which clearly indicates that bears are having upper hand in the market. Till this phenomenon reverses we can clearly hope that the trend is down and if the scenario reverses then we can easily go long. Last two days have really scary for bulls as it seems to have dented the confidence of the bulls and it appears that they might have given up to bears. One of the very very important things which has happened during the week is that nifty failed to move above the 5200 level and now it appears that 5200 is the laxman rekha for the market. So till 5200 is taken out on weekly basis bulls cannot feel comfortable. It can be seen from the chart below that selling is coming in a substantial level at around 5200 levels and it has been a substantial gap down in the market at that level. Now it’s the third time nifty has reversed from 5200 levels in last two months. So it cannot be taken lightly. When one level offers resistance continually then we can expect as substantial down side from that level or market would consolidated at that levels to gain strength and then make an attempt to conquer the resistance level. So we can either expect a down side from current level to take out the selling pressure or consolidated. Genearlly it takes longer time. so we can expect atlest 5-6 months for the market to gain strength. But if the price indicates reversal earlier then just believe in price. As my motto is “PRICE is KING”.
Point and figure charting clearly shows at what levels the selling or the buying pressure would come as it considers only price and nothing else. It can be seen in the chart below that there is a clear selling pressure at around 5200 levels. And the buying levels are around 4800, 4600 and 4500 levels. P&F charts are clearly indicating that hell would break loose if the nifty moves below 4600-4500 levels as we might see a verticals fall as has been seen in 2008 so we are not very near those levels so be careful while investing at these levels as any failure to the bulls to defend that territory would be disastrous for them.
It can be seen from the chart above that in 2009, 4500 was offering resistance for nearly six months and there after once it was taken over in 2010 it offered as support for further moves and so now we have to see the same level would provide support this time also. If its yes then it would be good for bulls and if not then bears would laugh at bulls. So any break of 4500 on weekly basis we should just short as we can see a very rapid fall in the market and bulls would run for shelter.
Now we come to weekly chart which is shown in the chart below. It can be clearly in the weekly chart below indicated by arrows that the arrows are continually moving down. It moving down is clearly indicates that when every buying is coming into the market the selling is coming immediately and evey selling point lower that the previous selling area. And in august we have broken the triple bottom which is a very bearish pattern on weekly chart and the target for the same works around 4200 levels, this is the minimum target. So as the pattern is formed in the weekly pattern we can expect the target to be met.
You can also see the same reverse thing in 2010 and 2009 and the arrows are clearly showing that the buy points with black arrows and the each buy point was higher than the previous one and the break out happened on the upside and the market moved substantially before reversing. This time the break down happened after down ward arrows so we should move substantially before reversing so we can hope the 4200 to be achieved in coming months. As per this unless and other wise 5800 is taken out we cannot hope any thing for bulls.
Positive for the market:
• Nifty has exactly taken support at 200 week EMA on friday.
• Daily MACD has give a buy signal.
Negatives
• Nifty is trading below, 50 day, 100 day and 200 Day EMA.
• 50 day EMA is below 100 day EMA is below 200 day EMA indicating extreme weakness.
• weekly MACD is in sell mode,
• Daily and weekly stochastic is in sell mode.
• Monthly MACD is in sell mode indicating weakness in the market.
Elliotte wave analysis: nothing much has happened as EW during the week to change any thing so it remains same as it is.
M.Sri Mahidar
Trend is Friend.
Sunday, September 25th 13.00 IST
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