Nifty : Charts telling a Lie?

I have been fiddling with my charts for some time. The above Nifty weekly chart has been labelled with what I can say a intermediate term bullish structure. But the fact that it has an ABC marking, tells us that this rally from October 2008 will end soon.

I am not going into the details of %age retracement and time taken by corrective waves. But as of now it looks quite acceptable. So I will definitely keep this count at the back of my head, if things started getting bullish, which I feel right now is so unthinkable, which makes it quite possible!

The labeling of wave A, is picture perfect, bullish guys will count it as wave 1. After that we have a 3 wave irregular correction. And then we see the start of a possible 5 wave C wave. I have shown in the chart that how the current 4th wave is overlapping with wave 1st of C (which makes this wave nothing other than C, bulls would have counted it as 3) Its a very different story if wave 3 is sub-dividing here.

Keeping this count in mind, we can say that we are still pending with some more time of compression. Wave D and E of wave 4 are pending. We can expect D to hit 5700 and E to end above 5400 and then see a 5 wave rally to test earlier highs and all time highs of 6350.

Some of you may ask as to why all of a sudden I am getting bullish. Once I put on my trader hat, I forget all what I have said earlier and did earlier. I need to believe what I see, and be flexible enough to to go from -100 to +100 and vice versa.

So when pessimism is all around you, you have counted infinite reasons for market to crash and placed bets for the end of world. It will cost nothing to have an exit plan, when the universe schemes against you, the market sets a trap and even the charts tell a lie, suddenly you see markets screaming higher for no reason, and all those infinite fears resulting in another short squeeze.

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.

Nifty : Cloudy Picture ?

Lets take a look into Nifty charts with Ichimoku Clouds overlays. It had been a good indicator atleast for Nifty in recent times. The chart below is on a daily time frame and lower to it you will find the weekly Nifty chart with Ichimoku clouds and 50 and 200 period moving averages. We will concentrate on the clouds for this post.

Without going into much details, I would like to point the key levels and times when these clouds did the trick. In the daily chart you can see how the clouds stopped the non stop fall since early Novr, later on it did not allow the reaction to go beyond the clouds. The mid Dec fall was as well protected by the clouds, and later on in early Jan though did not stop the reaction from going higher, changed colors to indicate the start of a new trend. You see how Nifty went into shambles when the cloud support broke.

Now interestingly if you see the Weekly chart, you will realize why Nifty stopped at 5200! It entered the cloud support of a higher time frame! Since then it climbed higher taking support at the clouds. Only to test the cloud once again last week. For next week the cloud support exists at 5500 and if we have a weekly close below that, we can surely expect another round of massacre of bulls.

Very cool observation would be to check this on the daily chart. Check the color of clouds around close of Dec, well it was green but changed its color to red! What happened to prices since that? A collapse.
Now see where are we in terms of color of clouds now. It was red few days back, but has now changed to green! Will it mean something again?

Given the fact, that we are close to cloud supports in both the time frame. The best trade would be to initiate longs. We all know that not much below from here are the triggers to get out in case the market keeps getting drubbed. So the risk reward is very much in favor of bulls. We all know Nifty is extremely oversold. And what I came to know, recently was that the 9 consecutive losing days in Nifty which ended on Friday was the longest in last decade, I am kind of getting more confident that going long now is the best trade one can think of!

Nifty : Falling Wedge ?