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Nifty short term Views -25-01-2010

Close  : 5036

We have been cautioning traders and recommending against Nifty long positions till it do not trades above 5327, based on the 49 day Time Cycle study which has yet again proved useful in gauging an important turning point. Nifty has now given a decisive break down of a multi month “Trend Line” connecting the lows of 2539 and 4538. The mentioned multi month “Trend Line” has been now adjusted thrice on the long term chart of Nifty. Once it registered a break down in the month of June 09, the second time it was in Oct '09 and this is the third time we have a break down of the long term “Trend Line”. It has also given a break down of a recent swing low of 5169 and now quotes below its 50 Day EMA. Additionally on the weekly chart it has given a break down of a “Rising Wedge” pattern along with high volumes registered on the day of the breakdown. At this juncture we would like point out similarities between the “Wedge” pattern on Nifty weekly chart and the “Ending Diagonal” pattern on the daily chart formed since Oct '07 to Jan '08. – Graph included on next page. The structure appears similar; but for one difference that the “Ending Diagonal” back then had registered a “Throw Over” but this time around Nifty has not tested the upper Trend line of the “Wedge” on the weekly chart. If the pattern we are anticipating is correct then there is an imminent threat of a very swift and violent correction within one week. The momentum oscillators on the weekly chart also support the bearish view, additionally the “MACD” indicator on the daily as well as weekly charts have registered a sell already after registering “Negative Divergence”. Also the “Directional Movement Index – ADX” has given a sell on the daily along with the weekly chart. All the above factors are weighted heavily in the favour of further downside. Thus we yet again reiterate that the best strategy for the time being is to refrain from taking fresh long positions, till Nifty trades below the level of 5175. Aggressive traders are advised to short the Nifty on any bounce back till 5090 to 5100 levels or below 4944. The level of 4944 is an important medium term support for Nifty a breach of 4944 may drag it down swiftly to the level of 4806 and below that 4717 is a possibility. Further downside is also a distinct possibility, in which case Nifty may come down to its 200 Day EMA placed at 4637 and the earlier swing low of 4538. However, the downsides might not be limited to the mentioned level as a typical downside target of a wedge pattern is its point of origin which is 3918. In view of the pattern formed on the weekly chart we issue a warning of an imminent downside reversal. The view holds as long as Nifty trades below 5175. Intraday resistance for Wednesday's session is placed at 5035 and 5060. Beyond that the range of 5083 to 5100 is s stiff resistance for Nifty. Support levels for short term are placed at 4944 and below that the level of 4796 is a crucial support.

Nifty Weekly Movements and Views

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Weekly Movements of Indices

View : Buy / Hold with Stop Loss of 4937 With Target 5127-5227.

Note : 21-02-2010

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