Christmas is approaching , and as a ritual every year, lot of Traders are expecting a 'Santa' Rally . But instead of hearing Jingle Bells from Santa , I am seeing 'Sunami waves ' on the charts. I fear that Santa (Rally) may not keep it's promise instead we may see 4400 levels approaching soon and probably below .
In the last Post for this Year , let us objectively analyze and check the Technicals for what lies ahead -
Why am I Bearish and why 4400 levels is a high probability Target ?
1. Monthly Chart ,Indicator ,Trend line and Pivots :
We should be aware that last session low of 4628 was the 52 week low and the close below 4700 was a first such close this year and may be first after the year 2009 on weekly basis.
As seen in Monthly chart below , last four months are making lows in 4700 levels but always closing above it on daily close basis. The break of 4700 level and close below it justifies that the path of least Resistance is Down and after few tries up now we are firming to go that way.
the Indicator has just reached Oversold zone and may remain there in a Trending Market.
The Monthly Pivot Points show that below 4800 level , the support is at 4400 levels and then below .
2. Fibonacci levels and Channel Pattern :
We know that Nifty is travelling in a Channel Pattern since the Highs of Nov. 2010. Now the Support of the sliding Lower Trendline is at 4400 levels.
The Fibonacci retrace levels of the low of 2009 (2539) to high of 2010(6338) shows a 50% retrace at 4440 apprx.
So both the Channel support and Fibo. level form a confluence at 4400 levels .
3. Volume :
The Volume consideration is the most important one after Prices and Prices associated with Volume tells a complete story . The Volume Profile chart of the last 10d show that Resistance has built up at 4760-4800 zone and any upmove in this series will only hold good on close above this range .
4. Futures and Option Data :
The Turnover of the last session was the highest in the series and that too with a bearish put -call ratio of Index Options below 1.0 . The move down was associated with a 5% increase in Nifty futures Open Interest also.
A Down move with increase in Open Interest is Bearish.
The 4700 strike level had maximum accumulation of Puts since the start of the series. It is my general observation that if the Option with Max. Open Interest gives way , then normally we get a 150-200 point fast move in the direction of the break . Its associated with trader's confidence , position built up and hedging at that level due to technical reasons , which invalidated leads to lot of squaring off positional trades leading to further fuel the move.
Last two sessions have closed below the previous series (November ) Expiry level of 4756 .
5. FII data :
FII's have been net sellers in both cash and derivative segments almost since that start of the series (and before too ) . This week there have been some big ticket selling days in derivatives both at the start of the week (4900+ was the weekly high made on Monday) and at the end of the Week ( A double distribution perhaps ) .
6. $USD v/s INR :
The fundamental reason for selling by FII's and their move resulting in the weakness of Nifty , is associated with the USD -INR relationship . The Dollar is strengthening against Rupee (after a long period of consolidation) . Nifty has an inverse corelation with $ movement and FII's tend to withdraw during the periods of stronger Dollar . Rupee traded at above 54 against $ this week which was a historic high .
The US Dollar Index looks to further strengthen up and seems to have started a new Uptrend off late . If it holds , we are likely to see the Rupee weaken further causing more pain to Nifty in near term.
7. Elliott Wave Analysis :
For the Basic EW counts that I have been following on Long Term Charts -
For the Update of EW counts - Click Here
We are considering the move since Nov. 2010 in a Triple Zigzag Pattern (W-X-Y-XX-Z). We are now Trading the Third Zigzag , the Z , since 5400 near Diwali this year .
This Triple Zigzag may have completed its first wave A at previous lows of 4640 apprx. Now we may be either wave B or wave C .
The Subwave structure for a probable wave B (Red count ) continuing now or a probable wave C now (Black count ) may be as below
If we are in wave B still (Red Counts ) then wave a-B is over at 5099 in this series and we are in irregular b-B now , which may be in its subwave C since last session's high of 4820 apprx.
The Fibo. targets of which may be apprx. 4530 and 4460 as in the chart above . Also if C=A ( here 370) = 4820-370= apprx.4450 .
So by both methods a likely target is apprx. 4450 if this count holds good .
Why the Targets of sub 4400 ?
1. Alternatively, if the wave B is over at apprx. 61% retrace of wave A (Black Counts ), then we may have started the wave C from 5099 and may now be in its subwave 3 since apprx. 4820.
- A simple target of wave 3=1.62 X wave 1 ,will bring the short term target of 4220 .
- Also wave A was apprx. 750 points (5400-4640 ), so with a conservative C=A , 5100-750 = 4350 apprx. ,we get a target of below 4400.
- With wave 5th of Black counts and C=1.62A for the third zigzag ,Targets will go below 4000 and matches 61.8% retrace in Fibo charts posted above (2.) .
Its interesting to note that both the previous Zigzags (W and Y) had a total length of apprx. 1200 points , ratios of apprx C=1.6 A and C waves of apprx. 1000 points.
2. Weekly Head and Shoulders Pattern :
The chart for the same was posted in some previous post . It has an apprx. target of 4150 level.
1. The Structure and setup now looks Bearish and conservative Targets of 4400 levels is a High Probability as it has confluence of levels by various methods above.
2. This move may unfold quite fast . (may be even in this week )
3. Second Target of near 4200 also looks realistic and may be possible by the end of this series or first half of Jan.'12 (if black EW counts hold good ).
4. The Bullishness with strength , will return on trading only above 18,500 Sensex levels (Nifty levels apprx. 5600 ) now as shown by Volume Profile since Nov.'10 highs.
5. Investors should not try and catch the falling knife and guess the bottom at this stage as valid Technicals for slide below 4000 levels also exist now . Either have disciplined SIP approach or wait on side lines till P/E levels for Nifty approaches 11-12 , which historically they did at start of 2003 and 2009 before start of next run upwards . We are at apprx. 17 P/E now.
6. A very simple but effective method to judge the confirmation of a firm uptrend is the Golden cross of 50-200 dma on charts , specially for the long term investors. As Moving Averages are lagging indicators ,the signal will come late but the confirmation will be effective. Right now we have a Death Cross made where 50 dma is trading below the 200 dma .
Now the most important aspect , that of caution in trading and not falling in a probable Bear trap . Trading above 4750 now in the next week will ring the danger bells and close above 4820 will invalidate / delay this outlook . We move to planning table again then.
Wishing a Merry Christmas and a Profitable Year ahead !!!