Nifty P&F analysis: Downtrend established. ‘X’ comes with opportunity!!

Downtrend established. ‘X’ comes with opportunity!!
Date: 3rd February 2014

As expected and discussed, Nifty witnessed sharp fall during last week to close around 177 points lower compared to its previous week close. Short trades have done well. I mentioned during the last post that ‘O’ has never been such a mouth watering. Have been talking about negative trend during last several posts and discussed about target of 5850.

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. As discussed during the last post, Nifty has formed a classical Bull Trap formation below 6260. Bullish internal objective lines are breached and downtrend is been established with some more downside counts being activated. Price is currently trading at a Fib support level.

Figure 2 is 10 box value chart plotted with High Low prices. Setup is negative and count direction is down. A horizontal count from the entire top pattern and a Vertical count from a recent breakout column come to the same count direction of 5570 meaning that the pattern is square. I mentioned about Anchor Point support area at 6180 levels and that support can become bearish when trend is down. Circled spot in chart shows the formation at Anchor Point. Bounce in prices witnessed resistance at previous support levels. ‘X’ becoming ‘O’ was an opportunity near that area.

I plot and trade 10 box charts but also track other box values and reversal values to anlayse the overall set up. Figure 3 is 1 box reversal chart of Nifty with box value 100. Two consecutive One step back patterns are followed by the downside breakout. Nifty has seen stiff resistance at 6300 box value. Rejection of uptrend is being confirmed with the breach of 6100. 300 to 500 points correction cannot be ruled out in this case. 5900 is a possible short term support area.

Downtrend is established with the breach of bullish internal lines. 6180 – 6200 should work as a strong resistance in case of recoveries from here. In a downtrend, ‘X’ looks more bearish. It comes with an opportunity of another column reversal that makes trades affordable and ensures that weak shorts are out. Price might opt to settle down or witness some bounce after such a steep fall which can be taken care by ‘X’.

P&F strategy for next week:

Trend is down and ‘O’ should be traded. ‘X’ comes with opportunity of column reversal that can give affordable levels for fresh short trades.

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 100 x 1 cl Point and Figure Chart

                                                                                                             

 -  Prashant Shah, CMT, CFTe

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