Let Price breathe. Some consolidation likely!!

Let Price breathe. Some consolidation likely!!
Date: 26^th August 2013

Trend of Nifty is down and following ‘O’s in such cases make one enjoy the screen. As mentioned earlier, 5250 – 5300 is a significant support zone which is respected by the prices. I noticed something interesting and tweeted during the week that all the stocks of Nifty index were bearish on 0.25% box value of 3 box reversal chart. This indicates that medium term downtrend is extended and need reason to breathe. Breadth numbers help at extreme zones of oscillators or when price is indicating a halt. P&F chart can be either bullish or bearish. Bearish chart is one where last generated signal is double bottom sell signal.

Anchor Point cluster shown in chart 1 and 2 also confirmed the support levels. Price has reversed from that and we all know about formation of hammer candle stick pattern in weekly charts that indicates change in trend. I know only one way to trade hammer in down trending chart, Follow next Double top buy signal!

So, is downtrend over and price has finally reversed? And should we buy all correctives now? Nobody knows this and no need to know in order to trade it. Trading is different than analysis. I do all sorts of analysis only to decide if next P&F signal or column change should be traded.

It’s a downtrend and picture looks bearish. Price is trading below 45 degree internals and several downside counts are open. There are evidences that the bottom that is formed recently will be breached eventually and some lower levels will be seen. But some price consolidation is likely for a while. Bullish Low pole pattern helps in trading vertical reversals. It will be formed if Nifty will trade above 5540 without reversal. We normally ignore Double Top signal in downtrend unless there is a reason to trade and low pole is one of them.

In brief, I think some price consolidation is likely and no trade should be taken unless P&F basic pattern is formed. Buy Double Top signal from here but apply aggressive exits. Trend at the helm should be respected hence Double Bottom sell signals should not be missed with stoploss placed at subsequent Double Top buy signal. 5650 – 5700 seems resistance zone.

Figure 1: Nifty 10 x 3 CL Point and Figure Chart

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

 Figure 3: Nifty weekly candlestick chart and 1% x 3 cl P&F chart

-           - Prashant Shah

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