Sunday, 27 April 2014

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

Nifty witnessing Broadening formation!!
Date: 28th 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.

No comments:

Post a Comment