Most market participants (including yours truly) were surprised by the speed and the extent of the rally witnessed last week. Without getting into #AsToldBefore exercise, I wanted to discuss the Nifty from a prism of Wyckoff methodology. Have a look at the daily chart of the Nifty featured below.
After completing the “distribution” near the high of 9119 in March 2015, the Nifty got into a “Markdown” phase which reached its downside objective at 7,100-ish as detailed in the earlier post. The low formed on the Budget-day qualifies as a “Selling-Climax” in the Wyckoff parlance.
Nifty could now be tracing out, what can be labelled as Wyckoff’s “Automatic Rally” . If the assessment is right, expect Nifty to remain range-bound for a while once the current rally ends. Recall the consolidation phase between October 2008 to March 2009. We can probably get into a similar phase before the next leg of the trending move happens.
If you want more recent example, have a look at the Tata Steel chart featured below. Hope you can use this chart and relate to what Nifty might do.
Notice how price was stuck in a trading range for a few months. Despite the negative-newsflow, price did not breach the lows of the range, indicating accumulation by biggies. Expect a similar phase in the Nifty, which is typically termed as “building a cause” for the next trending move.
If you are by any chance overwhelmed by the Wyckoff terminology referred to within double-quotes, then please feel free to run a search and there are tons of material explaining these terms and concepts.
While the discussion thus far might sound more academic or dull for most, let’s now get into more interesting question: Is the worst over and Where is Nifty headed !
My “guess” is that the worst is over but that still remains an informed-guess until there is concrete technical evidence to substantiate the claim. A breakout above the upper blue trend channel line in the bar chart at 7,850-ish would be an early affirmative answer to the question : Is the worst over? Notice how price briefly poked below the lower trend channel last week and managed to bounce back immediately. Classic Wyckoff stuff.
While the technical indicators in the daily time frame have triggered a buy signal, it would be prudent to see if this strength in the daily chart percolates to the higher time frame. We just have to wait and watch for further clues as time unfolds.
Before I wrap up this post, let’s look at the Point & Figure chart, courtesy www.Definedge.com.
A buy signal has been triggered in the chart, translating into a “vertical-count” target of 7,800. This target would gain more credibility once the price breaks above the down-trending red “Bearish Resistance Line” which is at 7,550-ish. A breakout above that line would be an early message that things are getting better for the Nifty. Once that happens, the blue “Bullish Support Line” drawn in the above chart would assume significance.
To sum up: There are signs of things settling down and turning around for the bullish camp. But, we need more evidence to strengthen the bullish-case scenario. Breakout above the down-sloping trendlines in the bar chart / Point and Figure chart would be the signs that I would be looking forward to.
As long as the recent low of 6,825 is not breached, expect a rally to atleast 7,800. The immediate support is at 7,250-7,350 zone. Signs of support in this region will be a healthy sign and I would be inclined to consider long positions thereafter.
I guess the target of 7,800 might impart a sense of disappointment among a section of the readers. Though it is not difficult to justify the case for much fancier target, let’s take one step at a time. Expect more frequent updates henceforth, as and when price clears some key resistance levels discussed in this post. If I fail to do an update, please feel free to send a reminder.
PS: One of my friends asked why there is no trademark Andrews Pitchfork chart in this post. Just to pacify him, I have included this chart as an addendum.