Beauty of P&F, Price tell us when to trade!!
Date: 13^th May 2013

The beauty of P&F must have been revealed to many with my last week write up. I was looking for Bull trap kind of situation above anchor point levels and wanted to short the price if it confirms me the same through P&F double bottom sell signal. But signal didn’t occur!! And as wrote, price didn’t signal us to short. Rather levels that will generate shorting opportunities are trailed up!! Price has gone up the one way and double top signal taken even with tight stops has worked in favor.

A formation of column of O in closing price chart is one of the methods of using aggressive stops in up trend. Stop would be placed below 30-40 points in that case if you are using 10 box charts.

We assume, expect, imagine and pre-empt the patterns but they often proves dangerous in the business of trading. Objectivity in P&F signals can help us in trading them.

Technical Observation:

Nifty has closed above 6100 on Saturday. This is significant. I am pasting a 0.25% P&F chart (Figure 1) for medium to long term pattern analysis. Nifty has confirmed the bounce from the highs of horizontal base pattern. Breakout from Fulcrum pattern with series of Catapults and Semi – Catapults is a Bullish setup with upward count direction that can be seen in the chart.

Have a look at Figure 2 and 3 for 10 box chart analysis. Chart with closing prices suggests uptrend with upward count direction and 45 degree line. But Nifty is trading near previous box high and hence at resistance. 20 columns Bollinger Band applied on High – Low chart shows that price is trading near upper band. Trading at upper band gives more information about strength of the trend.  

Pattern Observations:

A shake out pattern suggests that one should avoid first sell signal during bull markets and I have all the belief in the idea. But Double bottom sell signal generated after price test of upper band is quiet an affordable signal that needs aggressive exit strategy.

Another observation is that Nifty if closed below 6030 will form the High Pole pattern. I would not like to miss any double bottom sell signal that is been generated after the formation of this pattern. And a low below 6050 will generate double bottom sell signal in high low chart. Levels might change as price progresses. But this is to give you an idea about set up that can make price tell us about affordable short selling opportunities.

P&F RS Chart:

Let me also paste an interesting chart this time. Figure 4 is a P&F Relative strength chart of Bank Nifty to Nifty. Trend of Bank Nifty outperformance to Nifty is been very interesting and recent bounce is indicating a breakout. Formation of X would be an opportunity to look for Bank Nifty than Nifty at this point in time. In simple terms, Breakout in Bank Nifty might give some interesting opportunities when we are looking for some time and price consolidation in Nifty.

In Brief:

The trend is up though at resistance. Double tops from here should not be questioned but must be traded with aggressive stops. Not to short unless double bottom sell is generated. Look for breakout in Bank Nifty for outperformance.

 Figure 1: Nifty 0.25% x 3 CL Point and Figure Chart

Figure 2: Nifty 10 x 3 CL Point and Figure Chart

  Figure 3: Nifty 10 x 3 HL Point and Figure Chart

 Figure 4: 0.25% x 3 Bank Nifty / Nifty Relative Strength Point and Figure Chart

-      Prashant Shah

  

Disclaimer:
All information provided above is for general information purposes only and does not constitute any investment advice. Company or Author shall not be liable for loss or damage that may arise from use of information provided above. The report is purely for information purposes and does not construe to be investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed are current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Investors should not solely rely on the information contained in this document and must make investment decisions based on their own investment objectives, risk profile and financial position. The readers of this material should take their own professional advice before acting on this information.