Nifty: What Now?

The bullish case presented in the previous post has been invalidated by the subsequent price action. All the items in the check-list featured in the previous post has been checked. This in effect invalidates the short-term bullish view. Let’s take a fresh view and decipher what is in store for the Nifty.

If you are just keen to know my view (and not the rationale) then head straight to the last paragraph. If you are keen to know the logic behind my view, then read through the rest of this post.

From the daily chart of the Nifty featured above, it is apparent that the index has made a lower high at 8,969 (on a bigger picture), in relation to the all time high of 9,119.20. If that is the case, expect the price to eventually head to the middle line or the medianline line of the red pitchfork at 7,450 or lower.

This scenario is not however the preferred case scenario yet. Why do I say so? The charts presented below would indicate that there is a strong support at 7,725-7,850 range.

The two black dotted line represent the price level which has maximum entries of “Xs” & “Os”. This is analogous / proxy to the “Point-Of-Control” or POC in Market Profile parlance. This high volume node is quite significant in terms of support and resistance. Just to allay any doubt about the significance of these levels, have a look at the chart presented below which captures the similar level for the minor swing down from 8,969 to the recent low of 8,002.

If you notice, price turned lower last week at the same black dotted level highlighted in the chart above. Hope this reinforces the significance of this line.

So, unless we break this strong zone of support at 7,725-7,850, I would not expect price to slide to the medianline of the red fork. From the immediate short-term perspective, a fall below the recent low of 8,002 would indicate that the price is headed to the support zone of 7,725-7,850, which by the way is the preferred case scenario.

The other (less probable) bullish case scenario is that a low is in place at 8,002 and price is now headed to higher levels. For this scenario to play out, price has to move past the high of 8,600. This would ensure that a bullish sequence of higher highs and higher lows is in place. And, more importantly, a breakout past 8,600 would also result in a breakout past the 45-degree red bearish resistance line highlighted in the above chart.

To summarise:

Preferred View: Price headed to 7,725-7,850 zone. This would be confirmed if the Nifty breaks below 8,002.

Alternate, Less probable View: Worst case is over and Price headed higher. A move past 8,600 would strengthen the case for this scenario.

Expect an update when either 7,725 or 8,600 is breached.