Nifty: Nesting of Time-Frames

With the completion of the week, month and quarter, I thought it would not be out of context to talk about nesting of time-frames. If you recall, I mentioned in a post few weeks ago that there is a case for a sharp rally as the Nifty is oversold across all time-frames. When time-frames coincide, there is a case for a big move. Most traders get slaughtered when they don’t realise this concept of nesting and interplay of time frames. Let’s start off our discussion with Bollinger Bands and here is the quarterly chart of Nifty.

Notice how price tagged the upper band and then corrected to the mean or the 20-period average. The bullish hammer near the middle band or the 20-period average is a positive signal. Trend therefore remains bullish until we fall below previous quarter low of 6,825. Let’s now turn our attention to the monthly chart.

Price in the monthly chart bounced off the lower Bollinger Band and it would not be illogical to expect a rally to the middle band or the 20-month average at 8132-ish. This level can be a ball-park target for the current up move. Let’s see if lower time frames such as Weekly and Daily are supportive of this bullish view. Over to the weekly chart !

The weekly chart sort of reinforces the bullish view. The breakout and successful retest of the middle band or the 20-week average is a bullish sign. Candlestick watchers would have already noticed the bullish Hammer at the middle band.  The next resistance is at the upper band, currently at 8,110-ish.

We now have the weekly and monthly time frames supportive of bullish view, indicating probable targets of 8,110-8,132. Over to the daily time frame.

What is of interest is the way price has bunched up in the upper half of the band, which is a positive sign. The Bollinger Band width too is narrowing, suggesting a sharp move soon. Given the positive undertone in higher time frame, I would expect a breakout to the upside.

The purpose behind this post is to demonstrate how different time frames nest into each other. Big and sharp moves happen when more than two time frames are in sync. Always be mindful of the higher time frame to avoid unexpected shocks.

For those interested in the Nifty view, I still feel 7,950-8,000 is doable. As highlighted in this post, Bollinger Bands suggest a slightly higher target of 8,110-8,132.