Nifty Point and Figure Analysis : Time has come to trade ‘O’!!

Time has come to trade ‘O’!!
Date: 6^th January 2014

It’s been a bearish week that formed Bearish engulfing pattern in weekly candlestick chart. Profit booking at column reversal and 6240 as a trend reversal level was mentioned during the last week post which is triggered.

Chart analysis:

Figure 1 is 10 box chart plotted with closing prices. Price has traded below 6240 to form High Pole bearish pattern in this chart. Notice consecutive High Poles at the same level that indicates the strong resistance and immediate supply coming in to form vertical reversal patterns.

Figure 2 is 10 box chart plotted with High Low prices. Relative High formation (High below upper Bollinger band) at resistance zone is a bearish event. Double bottom sell signal is formed at 6270. The opposing pole pattern discussed in the earlier post is followed by some consolidating columns and a Double bottom sell signal. This is a classical case of patterns behaving their nature and generating affordable opportunities. Chart is attempting 45 degree internal line and 20 column average line. But the test is yet to be confirmed and these levels might act as a support zone to produce some temporary bounce.

Figure 3 is 1 box reversal chart of box value 10. Reason to show the same is recent One Step Back formation broken at 6270. OSB in the column of ‘X’ indicates weakness in the upward breakout. Price trading below the pattern confirms the weakness and form reversal. One box reversal count shown both the sides is a current trading range in the chart which is 6330 – 6030. And 6180 is a center level (Anchor Point) of this range. The breach of OSB pattern at 6270 came along with Double bottom sell signal in 3 box reversal High-Low charts (Figure 2) and Bearish engulfing candle in daily candlestick chart.

I don’t see reason to think long unless this bearish setup is violated which will happen if price trades above 6320.Some bounce on closing basis is expected due to some short term supports coming in to play. But they are the opportunities to trade short. When supports are broken resistances should be traded! In P&F argot, time has come to trade ‘O’.

Price is trading above bullish line. I would like to cover my short trades at column reversal till the day it trades below this line. Only double top buy pattern is a reason to cover the shorts once that happens.

P&F strategy for next week:

As mentioned above, I don’t see reason to think long unless price trades above 6320. Trade ‘O’s. Trade short at Double Bottom Sell signal, trade short at negative column formations.

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 10 x 1 cl Point and Figure Chart

              

-  Prashant Shah, CMT, CFTe

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