Bottom Line: We are in last leg of the first correction of our multi month Bull Run. We will not enter Bear trajectory until Nifty breaches and close below 6580 for three consecutive days.
Mr. Market loves to play fool around with Bulls Bears and all analysts. This is what we stated last week and here he goes. Now Nifty is marching towards filing up the hard gap that we have witnessed in the month of August. What next?
Even before we discuss what next, I wanted to discuss something i think is more important to read before analyzing markets. The topic for discussion is "Looking at the chart at different angles (time frame) ". Someone asked me this over the weekend, what would be done if different time frames gives different outlook. A very good question, I said now you have started to learn analyzing markets. Why? Unless a person looks at the chart in different time frames he is not going to understand what is happening or rather understand what is going to happen in the coming sessions. Contradictions on the outlook looking at different time frames would be there and it has to be there. It is the duty of analysts to synthesis the chart in totality after considering all possible angles.
A minimum of 3 different angles needs to be looked into always, then needs to synthesis even before jumping into any conclusion. Let's say I look into monthly, weekly and daily chart. Consider it is like film. The Monthly chart gives me the main picture. The weekly chart is something like reading a plot or looking to the film review or ratings. And the daily chart is like a trailer. Obviously, can you conclude saying a film is good or bad purely based on looking at a trailer? No, similarly the case goes with film reviews or reading the plot. The plot might be more or less with most of the other films, however if we need to conclude saying a film is good or bad, we need to see the film completely. That is why a monthly chart acts as an important chart than in any other to understand in totality. Similarly the daily charts as this chart summarizes the entire day's event. It acts as an engine as to whether you want to look into a film or not.
So that was a little story. Now back to business. Nifty daily chart has turned neutral from negative. Intermediary (Weekly) chart still remains neutral while Monthly (Main Picture) chart still remains bearish. Nifty can march ahead in filling up the gaps even before turning down. With no signs of turning up in monthly chart, it would be hard to believe the correction that we are witnessing would be far from over.
Stay tuned am updating the charts.
The key levels to watch out for on the upside are: 8225 (21st August Low) and 8359 (20th August Low) as these marks the start of hard gaps.
Bottom Line: We are in last leg of the first
correction of our multi month Bull Run. We will not enter Bear trajectory until
Nifty breaches and close below 6580 for three consecutive days.
Just now the DOW closed, closed with big gains however closed
this quarter on a losing streak. As some of you know, I analyse and trade DOW
more than any other market.
Let’s get into business. Am going to keep this post a bit
longer. As we move towards a longer weekend, let us do the analysis bit deeper.
Am going to take you through how a real analyst go through a chart with minute
observations to arrive at some conclusion. It would be boring for some who
doesn’t want to learn how to make money. It’s going to interesting for those
who want to understand how a technical analyst observes a chart.
Firstly, let us pull up the longer term picture of Nifty –
the monthly chart.
Nifty – Monthly
We can easily identify the long term upward sloping trend-line
still in place. This indicates Nifty has more room on the downside and
currently we are heading towards 7400 mark if we have to believe this long term
trend-line is to hold. If we drag in terms of time correction, we might see
this 7400 mark moving towards 7450 or 7500, let us not speculate right now on
where this correction could end up.
Nifty - Weekly
Now let us move to intermediate view on Nifty. Let’s pull the
weekly chart. The zig zag zone that we believed till yesterday was a rectangle,
you can find it in the posts below. Now observing this chart closely, we find
it to be a perfect flag pattern in formation. RSI still has more room before turning
down from in between 50 and 55 mark. Let us zoom this picture closely as to understand
when will this zig zag zone comes to an end.
Nifty - Daily
Looking at the daily chart for a closer observation. Now this
gives us few cues.
we are heading towards an end of this zig zag zone. Once we hit around 8040, most
likely today we might end up this zig zag moves. Even though we still have a probability
where in Nifty move towards 7750 and hit back 8000 once again to stay in zig
zag zone for quiet sometime, however the reason why I say we are ending up is
by looking at the VIX chart which is posted at the end of this post.
has some more room on the upside wherein it can turn down in between 50-55
mark. We always consider 50-55 mark zone in RSI chart as a completion of the pullback
rallies. This zone gives the main trend more inherent strength to push prices
Now the question comes, if we are heading towards the close
of zig zag zone; what next. Is it on the upside or downside. Can you see something
different on the RSI chart? This holds the answer to our question. Let us dig
the chart further down trying to answer our question.
Nifty - Hourly
Pulling up the hourly chart. We can now clearly see the zig
zag zone (flag) on zoomed version. Now as we discussed earlier RSI on the daily
chart hold the answer and this is why we have zoomed in. I have marked 4 points
on the price chart. Three different lines have also been marked on the RSI
indicator. Let us understand if there was any positive instances in the chart
to indicate the next move up.
RSI moved from 12 to 29 on the RSI chart, prices did actually moved lower
indicating that this move do qualify for a positive divergence, however did not sustain the next few moves.
RSI moved from 29 went all the way to 73 and moved back to 29, prices actually
moved up; however it does not qualify for a positive divergence as RSI chart
did not have divergence except for a double bottom.
RSI moved from 29 to 31, prices again moved lower indicating another possible positive
divergence which could pull back the nifty out of the zig zag zone, but fails to sustain the momentum (reading it along with MACD).
This shows though prices were hurrily moving up, it did not
move on the basis of inherent strength of Bulls rather it moved up because
Bears stayed away just to gain more strength to push prices lower once zig zag
India - VIX
Finally let us pull India VIX (Volatility Index) chart. This will
give us cues as in are we going to see an end to this zig zag zone in next two
trading session or not. I have always observed, there is a negative correlation
(most of the time) between price chart and VIX chart. So let us try to
Looking at the chart we see an upward sloping line which acts
as a trigger to plug in volatility in the markets. To be exact right now it
hovers around VIX-18 and once this 18 mark is touched we might see another
round of volatility creeping into the market, moving towards 40 mark which
means (negative correlation) nifty moving towards 7400 mark.
Conclusion: Today watch out for Nifty @ 8040 +
India VIX @ 18. If this combination happens either today or Monday, we might
see the next round of selling coming in. Alternative view: If we close above
8050 or India VIX closes below 18, we might see the gap @ 8360 filled up before
we head down. Why am I saying this alternate view is simple? We are in a
correction zone and always Mr. Market loves to play fool around bulls and the bears.
Caveat: It’s only Mr. Market who is always
right, not the Bulls, nor the Bears or the analysts. Mr. Market rewards only
those who understands this and who follows him rather than trying to beat him.