Reigning The Nifty - 14th September, 2009

Weekly Chart

Half Hourly Chart

Daily Chart

Negative Divergence  in AD Line

(Courtesy Icharts)

Last week's action resulted in a 200 point rise inspite of the negative divergences that I have been mentioning. This is extremely bullish considering the fact that it is a decisive close above the neckline of the inverted  head and shoulder pattern  and above the upper trendline of the rising wedge pattern. But I would like to do some dissection to see the insides of this 200 point candle. So here goes.

Monday : Huge bullish candle and breakout from consolidation pattern. Good follow-up buying .
Tuesday : Shooting star like pattern depicting selling at resistance
Wednesday : Inside day and a doji showing extreme indecision
Thursday : Classic shooting star pattern showing selling at highs
Friday : Doji with a lower high and lower low compared to  the previous day.

Barring Monday , the Nifty did not look very healthy , though each day's closing was higher than the previous day.This tells us that all is not well with the Nifty.  How about the other indicators?


Momentum

• Weekly oscillators have had moved lower from the overbought region since mid June when the Nifty hit a high of 4693 thus negatively diverging from the Nifty which has made a higher high of 4889 this week gone by. However , there are signs of improvement. The Macd is still in a buy mode and the Macd histogram has given an uptick The ROC12 has moved up without going below zero line.Stochastics too has moved up again in the overbought region.The RSI14 too has moved up after maintaining itself above the 50 level.
  
• Daily oscillators are yet showing negative divergence.Stochastics has given a sell in the overbought region. .Macd is in buy mode and moving up.The RSI14 is improving .
  
• Intraday oscillators  moved  down after giving a negative divergence but  have all started moving  up once again .

Momentum is not all that rosy but seems to be improving.

Moving Averages

Moving averages on all time frames are bullishly aligned except the 5,10 &  20 ema on half hourly charts, indicating bearish bias in the very short term.

 

Sentiment Indicators

• Volumes were not impressive .
• Put Call ratio is at 1.66 
  
• Advance declines line is in negative divergence.
• OBV has broken out above it's last peak and made a new high

Bearish Pattern

• The action since May 14 low of 3537 has taken the shape of a rising wedge, which is a bearish pattern. Break down from the wedge could give a 1200 point move. Negating it would require the Nifty to break above the upper trendline of the wedge .The Nifty has broken out above the upper trendline but the Sensex has yet to do the same. Till this happens I will be keeping this bearish pattern in contention.The weekly resistance for the sensex on this upper trendline is at 16308.
  

Bullish Pattern

• An inverse head and shoulder pattern is seen forming with neckline at 4750 .Break out from the pattern could give a 2400 point move up.The Nifty and Sensex have both closed above the neckline on the very first day of the week and maintained the breakout.
  
• Falling wedge pattern  on half hourly charts broken out on 17th July with a target of 5129.
  
• A falling wedge formation shown on intraday charts from which the Nifty has broken out on 21st August giving a target of 4934.
• A falling wedge from which Nifty broke out on friday 4th September, giving a target of 4770 which has been achieved.
• A falling wedge formed after hitting the highs of 4889 , and the Nifty has broken out of this in the last hour on Friday giving a target of 4922.
  

The  week's action is cautioning longs  and negative divergences give support to such caution.Momentum is not keeping up with price. The Advance Decline line too has negatively diverged. Rise is on low volumes.Put Call ratio is at 1.66 which is quite high  as market players are placing their bet on the markets turning down. A classic case of the market climbing "a wall of worry" . In most such cases markets continue to climb as the skeptics get tired of waiting for a downturn and invariably join in the party.Is this going to happen this time?

I would book part profits on my longs and continue with the rest of them keeping them hedged and enjoy the party till it continues.  Stop loss for longs at 4585. Short term traders could consider keeping a stop at 4780 which was the low maintained for the last three trading days.



Happy Trading !!

Lakshmi Ramachandran
www.vipreetsafetrading.com