Over the past few weeks, I have read a lot of views on the Nifty from wide variety of observers that include Ellioticians, harmonic traders among others. The target dished out varies from 7,500 (best case scenario that I have read) to hold your breath 3,500 and even lower. Before we proceed any further, here is an extract from one of my earlier posts titled : Nifty: The Elusive Support, dated April 20, 2015.
Look at the move from July 2014 till this month. The rally has been overlapping in nature and pay attention to the “buying-tails” in most candles. This indicates that the residual buying interest has been absorbed on the way up and if the price were to retrace, it is going to be swift and nasty on the way down. Am not saying that this “expected” quick-fall will happen immediately, but this zone is a potential landmine. Whenever price dips into it, expect a big red wide-ranged candle in the monthly time-frame.
Wonder how many of you paid attention to the choice of words in the above extract. There were clear warning signs that things could turn ugly if things were to turn-around. And, the situation has indeed turned nasty and last month turned out to be a red wide-ranged-bar (WRB).
Ok, I get it, the question that most people want answer to is: Where is Nifty headed now? Let’s discuss a few key markers left behind by price and try to arrive at some logical conclusion or at least an informed guess. Let’s start off with a monthly chart of the Nifty.
The most important observation, at least from my analytical perspective, is that the price is comfortably making lower swing highs and lower swing lows. It is also breaching prior swing lows with ease, suggesting that supports are not being respected. This is not surprising at all because of the nature of the prior rally. Most pockets of support have been consumed on the way up earlier and hence the path down is relatively easier for the bears.
The green zone at 6,638-6,839 marked in the above chart is the next logical support zone for me. This does not mean that price has to visit those areas. Not necessary at all and if you are in the bullish camp, you can definitely argue that price gives a damn to the zones that I mark. Perfectly valid argument and I have no complaints with that. The idea here is just to share my thoughts and observations.
Call this a worst case scenario view if you will. Am not placing all my bets based on this view but I will not be surprised or caught on the wrong-foot if we visit that area. So, just have this at the back of your mind and do not get perturbed by this view as of now. As an aside, notice how this overlapping stretch of rally in the Nifty resembles the monthly crude oil chart from August 2011 to June 2014.
Just to allay the fears of the already nervous bullish camp, let me present a more digestible view off the weekly chart.
The dashed lines in the chart represent the retracement of the major rally from the swing low of 4,531 to the recent high of 9,119. Though I am not a big fan of these retracements but am just trying to communicate in a language that many of you are comfortable with. Also on the chart is the downside projection from the recent fall, captured by the solid lines.
Notice the confluence at 7,364-7,475 zone. So, if you believe in this stuff, there is reason to be relieved as the Nifty is not too far off from this projected confluence zone. Also note that there is another confluence zone just below which syncs with my worst case scenario as well. Let’s drill down to the daily time frame.
In the above daily chart, there is a support zone at 7,450-7,480 which also overlaps with the weekly support zone mentioned earlier. Hence, there is a strong case to expect a bounce if price falls to 7,350-7,500 zone.
But, to conclude that the downtrend is over, I would prefer price to clear recent significant swing high. The immediate swing high for reference is at 8,092. Until we get above 8,092, please do not entertain thoughts of new highs in the Nifty and be more objective and realistic with your upside expectations.
Wanted to post something with respect to the hourly chart and its resemblance with the gold daily chart, but refrained. The post, I feel, is already too lengthy and would rather hold back the hourly chart observations for another post.
To conclude, the best case scenario for the Nifty is broadly 7,350-7,500 zone and let’s not highlight the worst case scenario again. It is already detailed in this post 🙂
Those who have not figured out the reason behind the blue-ellipse in the chart above, it is nothing but price a landmine-zone that I talked about in the Monthly Nifty chart in an earlier post. The price has consumed demand on its way up which is a clear warning that price would collapse if it were to revisit it. And, that is what happened. Not surprising at all and this was clearly mentioned in the second tweet above. Have a look at the chart in that message and I mentioned clearly that price would fall sharply if it reverse from the upper parallel. It is not my intention to do a #AsToldBefore post but to emphasize that price and simple tools give you lots of information to trade. Nothing fancy. The immediate target for the Nifty Futures is the medianline at 7,620-7,630. This range is not too far off from the immediate demand zone at 7,560-7,630. Hence, it would not be outlandish to expect some respite at the 7,560-7,630 zone. A look at the daily chart indicates that the next significant support zone comes in at 7,230-7,260 zone. I would not be surprised if we eventually test this daily support zone. The swing high at 8,125 is the level to conquer as of now, to suggest the case for a meaningful recovery in the Nifty Futures. Disclosure: I have a long-term portfolio of stocks comprising of Nifty constituents. I also hold short positions in the Nifty Futures.
