Nifty P&F analysis: Price at equilibrium, Battle becomes exciting!!

Price at equilibrium, Battle becomes exciting!!

Date: 3^rd March 2013

It is been a sharp recovery in Nifty that has filled the gap of daily and weekly bar charts. I was not expecting such a steep bounce and quiet surprised by it. But as mentioned during last week, box above 6180 was a buy signal in the chart.

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. The vertical count of 6220 is beaten and more counts are activated. But price has approached 45 degree resistance line. Double Top Buy signal above this line will make the intermediate trend turn to up. High Pole bearish pattern will be triggered if Nifty closes below 6180.

Figure 2 is 10 box value chart plotted with High Low prices. It’s a bullish range breakout but price has approached the bearish resistance line. Though last trade was bullish the setup is bearish at the moment and short trade seems more affordable than long.

As mentioned during last post, we keep anticipating points of resistance when price is going up. But price should confirm it to take the trade. I expected the resistance during last week but price did not reverse and continued with the column of ‘X’. I expect price to reverse from here but trade can happen only if and when ‘O’ arrive below the bearish objective line.

It is important to understand that price trading below the 45 degree bearish line mean that it is falling more than it is going up. This is a downtrend. Currently, price is trading exactly at the bearish objective line drawn from box high of 6340 formed during Jan 2013. Hence it is trading at equilibrium. Notice the Bull Ratio numbers shown in the figure 1. The ratio is 50% which means that number of ‘X’ and ‘O’ from the swing high are exactly the same at the moment. It becomes interesting to see the formation from here in this completely enthralling battle. If bears are more powerful we will get High pole or double bottom sell. If bulls have decided to change the structure, we will get double top buy above the bearish line.

An arrival of ‘O’ below bearish line is tradable with the stop above the high of previous column of ‘X’. Short term trend may turn from up to sideways and hence quick profit booking is advisable. Price going below 6180 will form the High Pole pattern in both the charts and make setup more bearish.

P&F strategy for next week:

Exit longs and wait for the next Double Top Buy signal above 6250. Sell at column reversal with stop above high of ‘X’ (Currently 6290). Follow quick profit bookings.

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

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