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.