24 July 2011

Nifty : Is Breakout Inevitable?

I am doing a post after quite some time, but as the market has not done a whole lot, I think the readers would not have missed me much (just bragging a bit!). In my last post I expected Nifty to move higher from the closing level of 5660 but instead it fell to 5500 and since then is stuck in a range of roughly 5550 to 5660.



If you focus on the recent action that I have talked about, you see how the past 2 weeks of trading has been done in a tight range and possibly in a triangle. I am a firm believer of Elliot Wave Theory and rely heavily on it to base my expectations. Triangles generally occur in 4th or B waves. I am expecting this to be a B wave of larger wave 2. Which means that wave C is still pending which should be around 250 points (as A was of that measure). So a correction from 5650 should take place and should be ending around 5400 or thereabout. After which the larger wave 3 should play out, which I hope will be able to break the downward sloping trendline, which has been a menace for the bulls. Also as I have marked, this will be the 3rd wave of even larger 5th wave and should take Nifty to new all time highs. (too bullish eh..!)

Let me explain why I am arriving at this conclusion. While there are innumerable counts (both bullish and bearish) that one can label the current structure. I am just focusing on the last leg of rally from 5200 to 5700+, which clearly has a 5 wave impulsive move. Now had this been a corrective wave up, it should have done it in 3 waves.  The other scenario can be, this being wave A of a 3 wave upward correction, leaving the option of wave C rally still to be played out. If this wave C rally pans out, it has a potential to rally to a minimum target of 5750 if we consider B to be restricted till 5400. Now I can't imagine Nifty rallying past the downward sloping trendline (which has resisted its move 3 times already) and falling back again. The breakout from the trendline if it happens should be a violent one, very similar to the one we had in September last year. It may attract a lot of volume and will perfectly fit the 3rd wave criteria.

Now let me try to frame a story which will fit this kind of count! For a 15% rally in Nifty that I am trying to build here, there must be a global picture. What we are seeing these days is a totally confused overall macro. Earnings are either in line or better than expected. European sovereign concerns are popping up every now and then and all of PIIGS have done their share of market scare. US debt ceiling issue and prospective downgrade has not spooked the market yet. There is enough worry to make the market climb on it, and who can forget the prospect of QE3! A look at the chart of oil/copper and gold can give us a better picture of where the equities of the world are heading. Obviously Nifty cannot rally alone, so we can expect the risk trade getting on again.

To conclude, what happens in future is nobody's ability to predict. But this ability is what man has been seeking for thousands of years. Being prepared is what one can do and I am sure rewarded he will be!

1 comments:

Sriganeshh said...

Tarique

just that uncertainty in earnings visibility is holding bull rally...once clarity on certain key issues emerge, guess nifty will touch new high soon...

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