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Monday, August 31, 2009

Reigning The Nifty - 31st August , 2009

Half Hourly Chart

Daily Chart Showing The Patterns

 Weekly Chart

  Daily Chart

Last week I said  " Intraday and Daily momentum indicators and moving averages are improving. Sentiment indicators are biased towards an upmove-- the breadth improved and selling was on low volumes. Put call ratio is showing oversold condition. The Weekly moving averages are strong and momentum will improve with this recovery in the short term. With the support of 4350 being held for the third time and a breakout from the falling wedge and inverted head and shoulders, bias is towards an upmove until this support is broken".  As predicted the upmove gained momentum and closed above the high of 4731.
Today the Nifty took support exactly at our level of 4650  and rallied back immediately. Last week we saw the Nifty break a three day range of 4353-4493 decisively on the upside and wondered whether it would lead to an upside breakout from the broader range of 4731-4353. The Nifty did break out intraday but has closed at 4732-- around the same level of the previous high of 4731 . Does the  Nifty have  enough strength to continue the upmove ?

  • Weekly oscillators have moved up slightly , the Macd which was getting ready to give a sell last week has given a slight uptick.
  • Daily oscillators are improving after giving a minor negative divergence.Stochastics has given a sell in the overbought region.Macd gave a buy on 25th after being in sell for almost two weeks.
  • Intraday oscillators continue to show a negative  divergence.
Moving Averages
     Moving averages on all time frames are bullishly aligned.
Sentiment Indicators
  • Volumes for the week improved over last weeks volume marginally .
  • Put Call ratio today was 1.20 indicating oversold markets.
  • Advance declines improved considerabky through the week.
  • OBV has broken above the previous high made in this rally  .
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.
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.
  • Falling wedge pattern shown in red dotted line on half hourly charts with a target of 5129.
  • A falling wedge formation shown on intraday charts from which the Nifty has broken out today giving a target of 4934.

Nifty had  strong surge up when the 4350 levels refused to break,  leading to short covering . After the breakout from the falling wedge , there was nervous selling by weak bulls and a few die hard bears . But the stronger bulls chose to buy on every dip leading to a straight seven day rally. The neckline of the inverse head and shoulders has been scaled. Also the weekly close was above the rally high of 4731 , though by just a point.Momentum indicators on various time charts are not too rosy making me cautious. The  sentiment indicators seem to be improving. The options data seem to indicate strong support at 4400-4500 levels.
Trading above the 4700 mark
Though the neckline has been scaled  it would be prudent to wait for more confirmation. Firstly , the rising wedge needs to be negated. Scaling of it's upper trendline decisively is necessary. The level at which it offers resistance is at 4750.Trading above 4750 can lead to upsides of
  • 4788 the 61.85  retracement level  of fall from 6357-2252
  • 4894 the target of falling wedge
  • 5129 the target of the falling wedge from which Nifty broke out on July 17th, 2009
Else Nifty could test the lower end of the rising wedge which is around 4250.

Supports are at  4711-4650-4582.

I would be cautiously long on the markets keeping my longs hedged.

Happy Trading !!

Lakshmi Ramachandran


Unknown said...

Absolutely clear explanation!!!!
Gr8 work

Lakshmi Ramachandran said...

thanks Yusuf.