Nifty: A Higher Low Or A Lower High?

It has been a while since I posted anything on Nifty and felt like sharing my thoughts after looking at the price action today. If you recall, I had posted a question in Twitter last week which was:

For Nifty, the question is do we have a higher low in place or lower high? Await a post soon.

— B.Krishnakumar (@Techtrail) August 6, 2015

Does this question sound confusing? It should not ! Let’s try to address this question by looking at the recent price action. I want to make it clear upfront that I am not trying to give out any view on the Nifty or making any projection via this post. The idea is to direct your attention to significant events in price action and not get influenced by day-to-day gyrations. Off to the daily chart.

As highlighted in the above chart, the Nifty progressed in a sequence of higher highs and higher lows (marked in red font) until it hit the all-time-high of 9,119.20 on March 4. The subsequent correction in the form of lower highs and lower lows ended at 7,940.30 on June 12.

The question now is whether this low at 7,940.30 is the next higher low in the broader scheme of things. If the answer to the question is YES, then the logical expectation would be that the Nifty would not breach this low and would go higher and eventually make new highs past 9,119.20.

On the contrary, the other question is: What if the high of 8,654.75, recorded on July 23, is the next lower high? If the answer to this question is YES, then it would mean that there is still some significant downside to the Nifty and the recent low of 7,940.30 would be under threat.

I can hear a few irate voice asking how on earth do we know which question will be answered in the affirmative. Honestly I don’t know. Rather than second-guessing which of the two outcomes is likely, let’s use some tools to be more objective in our analysis. Let’s incorporate Andrews Pitchfork into the chart and see what it throws up. Have a look at the daily chart featured below.

I have used the modified schiff fork in the chart and we now have some constructive reference points to decide which of the two outcomes is likely. If you notice, the recent rally from 7,940.30 was arrested right at the medianline of the red fork. This is a very very early sign that price “might” have made a lower high as it is unable to move past the medianline of the Red Schiff fork.

Unless price moves above the recent high of 8,654.75 and more importantly above the red medianline, there is a reason to be cautious and suspect that “probably” a lower high is in place.

This suspicion is slightly strengthened by the downward sloping Magenta Schiff Fork. Notice how price has been rejected from the upper parallel of this fork today. So, this upper parallel becomes a nice reference point too. As long as price trades below this upper parallel, it would be reasonable to work on the premise that price is more likely to drift lower, at least upto the medianline or the middle-line of the Magenta fork. A breach of the recent swing low of 8,315 would strengthen this scenario.

Please feel free to share your thoughts on the Nifty in the comments section below. I would love to see the comments section getting more active as that would make the blog more informative to the readers.