Nifty P&F analysis: Nifty in tight range. P&F pattern would be clue!!

Nifty in tight range. P&F pattern would be clue!!

Date: 24^th March 2014

Last week is mostly been non-event for P&F charts. It was one of the weeks where only time is been spent and price hardly doing anything.  

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Only one box of ‘O’ is been plotted in this chart during last week. This suggests that most of the action during last week is been a time consolidation with price not moving on the closing basis.  It’s a classical bullish setup and there is absolutely no reason to think bearish at this point in this chart. Close above 6540 will generate double top buy signal and should be taken. Statistically, Double top buy signal above upper band in this chart is been a profitable signal. I will paste the result in the blog if the pattern is formed.

However, we need to analyse the intraday price behavior during the consolidation which is possible with aggressive P&F chart plotted with high low prices.

Figure 2 is 10 box value chart plotted with High Low prices. This chart gives us more information about price behavior during last week. A new box high is made during the week which was not sustained till closing of that day (Hence chart plotted with closing prices is not moved) and then price corrected. Black horizontal lines shown in the chart are Anchor Points in the uptrend started in the earlier Feb this year. It can be observed that anchor rows of current consolidating pattern (B) are equal to rows in the pattern at the lower base (A). These lines are suggesting the current price range and any breach of them will indicate the breakout. Anchor base of the pattern will shift upwards at current levels if more columns are appeared in this zone.

Double Bottom sell signal from here in this chart will form a Relative high pattern which would indicate the possibility of a short term top. It will also trigger Bull trap variation pattern (6 column pattern) that suggests the price correction. Hence price falling below 6470 will indicate bearish pattern for the shorter term.

This will also be a negative breakout from the current consolidation range in all the charts. Various systems would trigger a sell call below these levels. Range and standard deviation bands are very tight in bar and candlestick charts. My observation is been that the first breakout from very tight range often proves to be a misleading and false breakout. Hence I would suggest to book quick profit in the first range breakout that we get.

Price correction from here doesn't change the intermediate trend rather healthy for the bullish setup and form mini bottom to trail the bullish line at higher levels. I would like to chase the 'X' unless bullish line is broken.

P&F charts can be a very helpful tool when price trades in a narrow range. Basic Double Top and Double Bottom signals can guide the trades. Price range at the moment is 6540 (on closing basis) and 6470. Short term traders can sell below 6470 but exit the positions upon column reversal.

P&F strategy for next week:

Buy if close appears above 6540. Sell if price falls below 6470. Exit at column reversal.

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

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

                                    

 -  Prashant Shah, CMT, CFTe

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 readers of this material should take their own professional advice before acting on this information.