04 June 2011

Nifty : What Clouds Predict?

Its been around a month since last update, but nothing dramatic has happened in my absence! Nifty from 5600 in 2nd week of May fell to around 5300 and then bounced back to 5600 last week, but Friday closing was disheartening for bulls as Nifty could not close above crucial 5550, a short term pivot.



I am starting with a weekly view of Nifty, which looks to be precariously poised above 5200-5400 support area. As we can see the cloud support has been breached and the upmove has been very weak and heavily resisted by the clouds above. The sell signal is still working (the blue line is lower than the red). So the dominant message coming out is that Nifty is weak and selling would take the limelight in coming weeks and months.

As pointed in the chart 5200 to 5400 support area should come into play pretty soon and if that does not provide the necessary help needed by Nifty, we are bound to see some serious bull massacre. The next zone of support comes only around 4600 to 4800 area. The 200week moving average is also located at 4800, so that becomes the natural target as well as support once 5200 is taken out. Obviously I am not telling Nifty will fall straight to those levels, 5000 would be a good round number support. And oversold oscillators along with divergence will give us some sharp rallies in between (mostly short coverings).

Now, what could trigger such a fall from current 5500 to 4800? As the recent news coming from global front suggests, there could be a whole lot of them. We are having Euro debt crises, serious questions on US growth expectations which as pointed out by economists have been only due to money printing, MENA unrest has taken a back seat but can emerge again at any point of time shooting up the crude prices and stoking inflation fears. I believe in the cockroach theory, which tells bad news comes in chunks, so I would be expecting these as well as some more new themes.

I have taken clouds lightly and paid the price, so trust me when clouds on weekly time frame says sell. Last time this (price below cloud in weekly chart) happened was in July 2008. Also price has never broken the cloud support since the March 2009 rally.

2 comments:

alphabet1 said...

it is a weak sell signal as it is above the cloud.
CS can bounce , max 5800 as per current cloud, but as you say direction is down. Resistance is the cloud.
i take targets from the cloud and CS not the HiLo candles.
Maybe 2012 could give 3900, maybe.

Tarique Anwar said...

uptrends generally culminate with a weak sell signal.. price goes below cloud.. oversold bounce happens.. can trigger a weak buy signal.. but then cloud resistance limits the gains.. and then we see another leg down.. this time with strong sell signal..

on the other hand.. i too agree on 3900 or some more.. to fill the 2009 election gap, lets see how clouds behave then

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