Nifty: Is a Top in Place ?

Quite a lot has been written about the Nifty since the 86-point fall on Friday. As always, there has been all sorts of views doing the rounds in the social media and I just wanted to join the bandwagon to air my thoughts. A 86-point fall near prior market peak and a crack in the US-markets have caused alarm bells to ring aloud.

Is there a case to be cautious? Definitely yes, more so if one looks at the weekly Nifty chart featured below.

Irrespective of the  choice of the “A”-Pivot, the interpretation is straightforward. Price has hit the medianline (#Andrews101) and has formed a selling-tail which is not a positive sign. When price hits the medianline, it can congest, reverse or sail through the medianline and move ahead. Of the three scenarios, the third one is least likely in the current environment. So, Nifty can either congest or get into a trend reversal or a downtrend.

If it congests, there is nothing to worry as it would typically lead to a continuation of the prior trend, which in this case is a bullish outcome. We therefore have to be concerned with the other scenario which is the possibility of a trend reversal. Have a look at the chart featured below.

I have drawn a “What-If” pitchfork, assuming that a top is in place for the Nifty. If this scenario is valid, price will typically run into trouble at the upper parallel. Any rejection candle or a selling tail at the upper parallel would make me cautious and I would tighten stops or lighten my long positions.

But…Hold On

I just wanted to provide the context for being cautious but I am not in the camp calling for either a significant top or trend reversal in the Nifty. If you ask me why, let me address that question via a few charts.

Hope the above charts provide some relief to the worried bullish-camp.

To Summarise: There is a case to be worried but a dose of caution is always a good thing to have. However, there is no reason to call for a market top yet, based on the evidence available thus far. What will make me bearish or at least worried?

1. A sell signal in the 0.25% Point & Figure Chart
2. Break of the swing low at 8,540
3. Rejection at the upper parallel of the down-sloping fork in the weekly chart

I would get worried and probably abandon my thoughts of a rally to 9,350-9,400 if one or more items in the the above checklist gets ticked. In the meanwhile, I will be watching what price does at the support zones at 8,760-8,780 and 8,630-8,650 zone.

I realise that the support zones and the swing low at 8,540 is quite some distance away form where price is today. But, am talking about medium to long term perspective and guess these levels would be more palatable for the participants in that time frame. For the short-term traders, I have nothing to offer as I am less interested in that time frame.

I will do a follow-up post if that checklist gets ticked. If I don’t, then please feel free to alert me via email or twitter.