Nifty P&F analysis: 7700 before 7000? Let’s follow ‘X’ to know!!

7700 before 7000? Let’s follow ‘X’ to know!!

Date: 19^th May 2014

Finally.. Ache din aa gaye! What a nice feeling to have a stable government with clear mandate.This definitely is a special Sunday. I have to deal with this sense of positivity while writing about the charts that are bullish as well J

At times it is very difficult even for an experienced trader to deal with the external stuffs especially when event is not an ordinary. Mentioned during last post that price has clarified the direction and set up is bullish. Longs have no reason to exit unless double bottom sell or high pole triggers. Still stand by that!

Price Analysis:

Figure 1 is 10 box value P&F chart plotted with closing prices. Count of 7160 discussed during last post is been achieved. Achievement of bullish count above bullish line is actually a bullish event. Current column of ‘X’ is consisting of 54 boxes now (540points) and High Pole pattern will be formed in this chart if price closes below 6930.

Do such long columns suggest that we should exit our longs and/or short because price must be ‘exhausted’ and some ‘profit booking’ or ‘correction’ may occur?  An acceptance of the fact that one cannot buy right at the bottom and sell at the top can make one realize and stick to a method of following the price. Rather give lot of piece in the life.

  

Figure 1A: Benefits of Price following

Picture 1A is a perfect demonstration of benefits of a disciplined of price follower. A long column followed after a complex expanding formation (whipsaws) in Nifty right before election week (Price noise).

Closing prices doesn’t pay attention to intraday noise and hence plots relatively clear patterns. All sorts of backtesting suggest that patterns of charts plotted with closing prices are more profitable than any other plotting hence I obtain signals from pattern formed in these charts only. Charts plotted with high low prices give more information about intraday moves. Though it display more noise but can benefit short term traders if tactfully used.Short term traders would like to lock in some profits and take another signal in the direction of the trend. 

Figure 2 is 10 box value P&F chart plotted with High Low prices. I think twice before plotting the vertical count in charts that are not plotted with closing prices. The column that has triggered 7700 is a breakout column of price consolidation pattern and appeared after a significant bottom formation that was indicating the negative break out hence a classical bear trap formation. And 7700 is a conservative count (2/3^rd) being the long column. Aggressive count signals 8230.

This chart plots high of 7560 that was formed on last Friday but some significant selling happened and price closed around 7200 in the end. A high pole pattern will be formed if price closes below 7330 on Monday. This information can be used by longs to book the profits for a while. And long again upon positive column reversal (Reappearance of ‘X’).

In brief:

I do believe that we are on for 7700. But a column of ‘O’ on closing charts is quiet possible before that which should not breach bottom of 7000. But this just the assumption and following ‘X’ is more profitable.

Remain long unless double Bottom sell or High Pole bearish pattern is formed. High low chart pattern discussed above can be used for exiting the longs. But reiterating, missing ‘X’ in such a strong chart is a sin.

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:
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