Trend down & talks of supports? Answer lies in basic P&F patterns!!

Trend down & talks of supports? Answer lies in basic P&F patterns!!
Date: 12^th August 2013

Formation of column of ‘X’ during last trading session has ensured long 55 box column of ‘O’ in 10 box closing price Point & Figure chart of Nifty. This is longest column of O since Oct 2011. We have already discussed about negative setup and down side targets of Nifty. Current vertical fall has made price box touch 20 columns lower Bollinger Band in both the charts plotted with closing prices in Figure 1 and High low prices in Figure 2.

There are some evidences of support around current levels when we look at left. Along with trading near lower bands price is also trading near Anchor Points in both the charts and near previous highs which might act as support when price is falling. It is also trading near monthly trend line in Bar chart and several indicators are forming positive divergence in oversold zone in hourly charts!!

Hence trend is down but price is trading near support and there are chances of some relief rally.   Another important point is a possibility of formation of Bullish Low Pole in High low charts if price trades above 5600. Resistance area is around 5700 - 5720.

So should we go and Buy on Monday due to such indications and low risk reward?!! Risk reward of a trade against the established trend cannot ever be favorable and affordable! As said earlier also, one should avoid buying at first column of X in downtrend. And Double tops in downtrend need more confirmations.

In brief, cover existing shorts if price trades above 5600 due to Low pole formation. No fresh longs because setup is negative in closing price chart. Long Double Top signal if it occurs above 5600 but apply aggressive exits. Missing Double Bottom sell signal is a sin in such trends. Rather enjoy them with stop loss placed at subsequent Double Top Buy signal.

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

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

-         -  Prashant Shah

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