Reigning The Nifty - 17th August 2009

Half Hourly Chart

Daily Line Chart Showing Support At Neckline Of Previous H & S Pattern

Daily Chart

Weekly Chart

Last week I concluded ,

As of now,

• The short term trend is down while the intermediate trend is still up.
• 4421 is the earlier low and the 38.2% retracement level of rise from 3918 is at 4423 which should be strong support.
  
• Below 4421, Nifty has strong support at 4325-4380 levels. 50 Dema is also around 4327 levels.
  
• The intraday charts show an oversold condition.

The trendline joining March lows at 2539 and July lows of 3918, shown in green, offers support for the week at 4250 to 4325 for the week. Holding this trendline will keep the bullishness of the upmove alive. One can look for oppurtunities to go long keeping these levels as a stop loss.

The Nifty made a U turn from 4359 as analysed and retraced 70% of the fall by end of the week, supporting the view of buying on the dip. Has the scenario changed in any way?

Momentum

On weekly charts

• The negative divergence on Rsi 14 and stochastics is intact,
• Macd is flattening after reaching overbought levels but yet to give a sell.

On daily charts

• The Rsi 14 is above 50 but looking lethargic.
• Macd is in sell mode.
• Stochastics is moving up from oversold levels.

On intraday charts

• All oscillators are once again moving down from overbought levels.

Moving Averages are bullishly aligned on all time frames and in favour of climbing the wall of worry.



Sentiment Indicators

• Volumes during the weak was on the lower side.
• Advance Decline line moved marginally up during the week but negative divergence intact.
• Put Call ratio is 1.1
• FII selling on the increase.
  

Bearish Price 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.
• Head & Shoulders pattern on half hourly charts. Break of neckline will give a down move of 300 points.
  

Bullish Price Pattern

• An inverse head and shoulder pattern is seen forming with neckline at 4700 .Break out from the pattern could give a 2400 point move up.

View

• Recent action - selling at higher levels earlier at 4731 and now at 4620.
• Has not been able to close above the 61.8% retracement level of the recent fall from 4731 to 4359.
• Entire run up from March has been too fast and without meaningful corrections,
• Momentum indicators on weekly showing mild negative divergences after reaching overbought levels,
• Low volumes showing lack of participation due to indecisiveness reiterating the fact that fundamentals are not supportive of a further upmove .
  

Indicators are not in sync with each other indicating we are very much in a fluid state.
At the moment being a chameleon will work the best. Since we have a bearish and bullish pattern in contention, it is difficult to be a bear or a bull. One must trade with strict stops as between 4350 and 4731 it is a ranging market whipsawing traders without mercy. Till the Nifty breaks out of this range or from one of the patterns discussed above , trading will be difficult as a diehard bear or bull.

Pssssst --- My vote goes in favour of the bears.

Happy Trading !!

Lakshmi Ramachandran
www.vipreetsafetrading.com