03 December 2011

Nifty : Triple Zig - Zag ?

The recent Nifty moves must have fooled many traders : the intraday breakdown of 4700, but the inability to close below it on the daily chart pointed towards a possibility of a strong upward reaction. We got that as well, can't say how many traders would have caught that move.

Next thought that comes in mind is how much more this rally can carry on, or have we made a short/medium term bottom. I took a look at the kind of pattern that has developed since last year, which in Elliot terminology looks like the formation of a triple zig-zag.

In the above table, I have marked the waves as A, B, C and X. Zig-Zag type of correction generally tend to have a relationship among its counterpart waves. As we see the first 2 wave Bs are around 75% retracement of wave As, also wave Cs are roughly 150% extension of wave A. The lower table shows wave Xs being about 60% retracement of the entire 3 wave correction.

The bottom 2 rows of the upper table is where I have tried to use this relationship to estimate the target of the current upward wave and the target of the next final C wave down. So the target of current rally looks to be ending around 5200 (nice resistance!) and finally a break of all supports to reach somewhere around 4100 (this is currently a vague target, underlying thought being another 1000 point or more massive fall).

The reason I am still suspecting another fall is the fact that we are still awaiting a resolution of all these European s***. The fact that all central banks come together to provide liquidity means there was something very terrible about to happen. The current effort is just another kick on the can. I am expecting market to realize sooner than later the hopeless situation Europe is in and the solution lies in taking the pain rather than buying another dose of the same drug.

The rally is also very technical in nature due to the fact markets was oversold and seasonal factors suggests some kind of year end Santa Claus rally! I feel we are going to make another top in late december or early january and then have a terrible Q1 2012. Hopefully 4000 or roundabout Nifty should find its feet.


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