23 March 2011

Nifty : Volume and Speed Analysis

Many of us would be quite frustrated and confused with why Nifty is behaving the way it is. It has done almost nothing if looked over a month's period. Even the volume is abysmal and looks like no one is interested in buying or selling anything related to stocks.

Local events like RBI policy and budget (THE trend setting event) for Indian markets have come and gone. Nifty reacted for a day and then again lazed around. Global events like the devastating earthquake, tsunami and nuclear dangers, war like situation in Libya and other middle east countries also looks like little worries.

So what will move the market, if not such news. As many Technical Analysts say its not the news that drive the markets its the mood of traders that do. As of now traders are not in any mood to do business. Most of them are waiting for some trend to emerge so that they can take positions according to it. Others are getting whipsawed both sides.

Above table shows the closing price of Nifty, and the major turning points, along with volumes.
As you can see wave1 was sharpest of all and also had the highest volume. Wave2 had very low volumes. Wave3 was longest in terms of price as well as time and also had quite high volume. The current wave, wave4 is very flat and has volumes comparable to wave2.

This price and volume action is very much in accordance with Technical Analysis, where trend moves have higher volume and counter-trend lower. For Elliot wave followers as well, this pattern fits pretty well, like lower volumes on bounces, equality of wave2 and wave4 in terms of time. If both of them are combined we can say that the higher probability is of a leg down, rather than up for Nifty.

Coming to the flatness of wave4, we are in a period, where buyers and sellers are at an equilibrium. Market is neither very cheap nor valued enough, for traders to make some easy decision. But someone will give up, either the bulls or the bears and we should she some kind of trend emerge in some time.


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