15 September 2009

Nifty : Rising to Fall ?

After today's rally in Nifty which came out of nowhere; all my correction expectations were thrashed. But after looking at today's chart some hopes were rekindled. I am posting 2 charts today just to see how closely each rally is related to another.
The first chart (click to enlarge) talks about the rally we saw in July. I have marked the rally as a 5 wave structure in black. 3 waves up and 2 down and after that the correction in red. What we can learn is that the 1st wave is a very strong one and gives the MACD a big push, so that the divergences reaches a new positive high. We have a correction and another leg up, this time the divergences are lower than the previous. Again there is a correction and then we have the final leg up which is associated with even lower divergences. For all the 3 waves up, the Rate of Change which measures how quickly the stock is moving also decays.

So what we get after a 3 wave up is a nice setup for a 3 push reversal. The correction that follows is atleast 38% of length of the total move up and it can go till 78% depending on how bullish or bearish the set up is.

Now take a look at the second chart. This is the current development in the Nifty. What we see after few days of consolidation and today's rally is that we have a setup where the third and final upside is pending and if it happens with a even lower divergences and ROC, we can say that we are almost at the verge of another significant correction.

If we get few days of rally (ideally not more than 2-3 days) with not much volumes and looking very tentative and somehow manages to touch 5000, be ready for a correction in the range of 250 - 300 points. Remember counter trend moves are pretty fast and furious and should occur in 3 waves.


Anonymous said...
This comment has been removed by a blog administrator.
Faisal Humayun said...

I would agree with most of your analysis.In my opinion, the upside might be capped in any case at 5100 in the near term...

So we are not far away from a correction...and since we did not have any significant correction in the last 5-6 months one can surely expect a very meaningful correction (easily around 20-25%) in the next 2-3 months.

Anonymous said...

Time is coming near for correction. The remaining trading days of Oct 09 and the month of Nov 09 are very important. Market may wait for correction till the Q2 result of major COs. Then correction which may be 10-15-20% is expected. Correction of 5-6% is no correction. So there will be a correction of 10-20% or no correction.

Post a Comment