27 August 2011

Nifty : Pessimism for a Rally?

After Friday's selling, mood has definitely turned for the worse. Lower targets from "analysts" must be coming up on TV. Checking the charts it looks to me that wave 3 is finally coming to an end! It has done tremendous damage to prices, erasing 1000 points in exactly 1 month from Nifty. Apart from that the damage to chart and sentiment has been extreme. To get back into bullish mode a lot of work has to be done.

The above hourly chart shows that there are divergences developing in RSI and MACD, with oscillator also in oversold region. Though none of these are a guaranty that Nifty will rally, but there is high probability that Nifty will not fall further, or may even rally to get rid of these divergences.

Now if there is a rally or a sideways consolidation (which also will start with a rally), we can expect Nifty to target 4950-4960 atleast which is both 23.6% retracement as well as resistance from where Nifty turned down. Next target of 5100 (38.2%) is also well within reach and my preferred target.

Wave 2 (from 5500-5700) was a deep correction, so wave 4 which we are expecting to witness should be a sideways move, which means we can see some kind of triangle or rectangle developing for next 10-15 trading days.


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