Nifty P&F analysis: Nifty witnessing Broadening formation!!

Nifty witnessing Broadening formation!!

Date: 28^th April 2014

Nifty weekly chart has seen ‘Hanging man’ candlestick pattern followed by ‘Shooting star’. Should longs be worried because this indicates the possibility of reversal?

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Nifty has formed Mini Bottom at 6690 as shown in the chart.  This has given us opportunity to trail our objective line and make the longs affordable. We would want to be bullish as long as price maintains 45 degree trend line now drawn from the Mini bottom, meaning it is rising more than it falls after formation of the new bottom. The formation of Mini bottom also was a perfect demonstration of Shake out pattern that suggests that the first sell signal in bull trend should always be ignored. Far from selling, it is an opportunity to look for ‘X’ to trade long.                                                                                                                                        

Price has formed Bullish Broadening pattern above upper Bollinger band. Setup is bullish and trend is up. However, price will form High pole reversal pattern if it closes below 6760 hence an exit trigger for current longs. Close below 6670 will indicate possibility of 6450 – 6500.

Figure 3 shows three box reversal charts of Nifty with box values 0.15%, 0.25% and 1% to compare the current position in all of them. If you notice, current formation in 1% and 0.25% charts is a simple Double top buy signal that avoids noise of lower magnitude price reversals. 0.15% (absolute 10 box value at current levels) chart adds some ‘price noise’ to it. P&F smaller box values gives us opportunity to analyse the time-less noise and study the structure. Simple double top buy formation in higher box value chart exhibits bullish broadening formation in lower box value charts.

This formation provides us opportunity to backtest the occurrence. Figure 4 is back testing results of Bullish broadening formation with exit rule of first double bottom sell signal after the occurrence. Pattern seems profitable and remains valid in current setup as long as Nifty remains above 6670 on closing basis.

Figure 2 is 10 box value chart plotted with High Low prices. We discussed the Bullish broadening formation in this chart during last post and that the pattern will be negated below 6650. Channel lines and support lines are shown in the chart suggests that the structure is bullish as long as price remains above the same.

P&F strategy:

Exit longs below 6760 due to High Pole reversal pattern. Trade every appearance of ‘X’ till Nifty is above 6660.

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 0.15%, 0.25% and 1% P&F charts

Figure 4: Back testing results of Bullish broadening formation

  -  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.

Nifty P&F analysis: It all comes to ‘X’ when trend is up!!

It all comes to ‘X’ when trend is up!!

Date: 15^th April 2014

Intraday price saw ticks below 6670 during last week but ‘X’ assured the control over trend immediately and reappeared to stand by longs.

                                                                                                                                             

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Statistical results of Double top buy pattern above upper Bollinger band were discussed here. It indicated the higher probability of higher bottom to be formed above 6480. Bottom is trailed up at 6700 box value during last week. Double bottom sell signal from here will be triggered bellow 6690. This has not only assured large gains from the first buy signal but also made fresh longs affordable from here. Existing longs should remain in unless price forms Double bottom sell signal.

Figure 2 is 10 box value chart plotted with High Low prices. A Bullish broadening pattern is formed in the uptrend. The pattern is formed in this chart due to noise of high low charts. It is basically a Bearish bull trap pattern immediately followed by Bullish bear trap pattern. This is a bullish set up and current column of ‘O’ turning to ‘X’ will trigger an affordable fresh long trade. The pattern will be negated below 6650. Double bottom sell signal from here will not only negate the bullish pattern but also confirm the Relative High formation (High box value below upper band) which is a bearish event for short term traders.

I have discussed prior pre-election setups in the previous post.The current setup is bullish and we should keep finding reasons to trade long till it is trading above bullish line. A Double bottom sell signal from here would actually give an opportunity to trail the mini bottom up and generate fresh upper counts. We keep analysing the setups and various formations but everything eventually comes to ‘X’ when trend is up. Best methodology is to stick to what price is doing, stick to ‘X’.

P&F strategy for next week:

Remain long above 6690. Fresh ‘X’ is fresh buy trigger.

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.

Nifty P&F Analysis: Take a break below 6670. Let ‘X’ reappear!!

Take a break below 6670. Let ‘X’ reappear!!

Date: 7^th April 2014

Finally the column of ‘O’ appeared on Friday with 5 boxes. These are maximum boxes in negative column since the uptrend that has begun during Feb 2014.

Chart analysis:

Figure 1 is 10 box value chart plotted with closing prices. Column is turned to ‘O’ but chart set up is bullish. It seems that a price correction has begun and we might see some downside or column squeeze from here. A close below 6620 will trigger High Pole reversal pattern. If not short, it’s an exit trigger for longs. But the pattern doesn't make chart bearish and we keep finding High poles in uptrend just like we keep getting hammer and doji candlestick patterns in the uptrend.

Figure 2 is 10 box value chart plotted with High Low prices. A tick below 6670 will generate double bottom sell signal. The interesting thing is that the last column of ‘X’ was below the upper band hence qualified for the Relative High. The setup certainly calls for exit of longs.

Figure 3 is Three line break chart of Nifty. A first red line has appeared in the uptrend. Narrow lines in upper formation suggest that last several advances have been quiet weak. I posted one line break chart in one of the recent posts to discuss the structure. These charts sometimes confirm or deviate from the P&F patterns and provide very useful information about the setup.

There are evidences that some price correction is possible. But this doesn’t make charts bearish. A correction or double bottom sell signal from here will give opportunity to trail bottom & trend lines. The gap between bullish line and box value is been very high. A price correction will help to trail the trend line up.

We are approaching the event of general elections which is certainly not the ordinary event and things would be very volatile. It is very difficult to maintain the detached involvement during these times. We keep hearing developments and change our views accordingly. Nobody is certain about the outcome and a trader even doesn't need to.  Figure 4 and 5 are pre-election P&F charts of Nifty during 2004 and 2009 respectively. The picture makes one thing very clear for sure, Price is a leading indicator. The only job of a trader in that case is to follow the price. P&F patterns can help doing that.

P&F strategy for next week:

Exit longs if price goes below 6670. Wait for ‘X’ to appear again!!

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 Three Line Break Chart

Figure 4: Nifty 0.25% x 3 cl P&F chart during 2004 (Pre-election phase)

Figure 5: Nifty P&F charts during 2009 (Pre-election phase)

                                      

 -  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.