Nifty Index updated on 07 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

As suggested yesterday, we did see some strength in the opening. However, as the day progressed, we saw three events, which confirmed the weakness.

One was the downside violation of the short term (thin blue) trendline, which was holding up with higher bottoms all this time. That was our first warning signal.

The second alarm bell was the simultaneous violation of a longer term (thick green) trendline.

The third was that it has made a lower top.

These three factors put together allow us to conclude that the short term up trend has come to an end.

I have been visually carrying the stops, which bulls could have adhered to for the whole of last week.

Now the flip side. There are two positives for the Nifty.

One “ray of hope” for the Index is the second line of defence (thick blue line), which is still holding. However, this trendline may not help too much.

The second is that the almost parabolic pattern of this sharp fall. After this kind of a fall we may expect a minor pull back to the upside, but that will only encourage bears to come out with full force and initiate fresh shorts.

Here is what may happen on Monday. The market could open weak, at around the 3000 levels, which will trigger a lot more stops of bulls. It could then retrace upwards. However, it seems unlikely that bulls who have taken long positions on Thursday and Friday could get exits easily.

On the other hand, if the market opens strong, bulls could exit their losing positions, with minor losses, and sit back and evaluate what went wrong. And then ... plan for another day.

Which brings us back to a very important point, which I am very fond of repeating again and again … plan your trade and then trade your plan. Before initiating a trade, answer two simple questions … what if I am right? … what if I am wrong?

Nifty Index updated on 06 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

Yesterday, in my last paragraph, I had mentioned that there was a cycle in time that occurred yesterday. Which led us to the possibility that yesterday could be a short term top.

Indeed, the market reacted with weakness. But the force and the momentum of the weakness has not been strong. We also see that the Nifty still has not violated its previous swing low.

The Nifty also reacted rather smartly from its lows. The manner in which it moved up suggests that we may find tomorrow resuming the up trend. We could then count today as a breather pause.

If the reader “zooms” in to the last two or three days, we see that a minor trendline in blue has still not been violated. The Nifty also has remained above an earlier swing top, which was earlier exerting resistance. Now it does seem to be providing support.

If on the other hand, we see the weakness extended tomorrow, then we may assume the intermediate trend has turned down. Of course, the weakness has to be confirmed by violation of earlier swing lows. In case the earlier swing lows are not violated, we will assume the trend to remain up and approach the market with long point of view.

Using other analysis techniques, we see a relatively large build up of short positions on the Nifty futures and options. Since the exchange does not release data for long or short open interests, we cannot pin point whether long positions have booked profit and exit, or fresh shorts have been created.

Either way, we find that, suddenly, the majority in the market have become pessimistic. And as we all know, most of the times, the majority are proved wrong.

Therefore, we may expect that the uptrend could be resumed to our earlier projections.

Nifty Index updated on 05 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

Yesterday, it was stated in this column that the Nifty was expected to move downward in a ranged move till mid session. How wrong the Nifty proved me. It did open weak, but spent very little time regaining strength and powering itself up 50 points in an hour.

The bearish blood seems to have been eradicated within the first five minutes. On the face of it, the Index was extremely positive. It did all the right things to retain the bullish flavour.

Midway, it encountered the red trendline and collapsed a good 40 points. On the way down, it tested the earlier swing high, and also rested on the fibonacci level. After that, there seemed no looking back, and it went and retested the red line. The manner in which this particular trendline is offering resistance, the Nifty needs to do something very spectacular to break out from that region.

So far, the Nifty seems still on course to its projected level of 3250+. But the effort required now will be huge.

Depending on how the market approaches the overhead resistance levels, we could draw up our further strategy.

As of now the ideal thing would be to keep using swing lows as trailing stops to book profit.

While trading, it is also advisable to look at the other side. On the flip side, there is a cycle in time occurring today. Normally these cycles in time are pretty accurate to within one or two days. In that case, today or tomorrow could turn out to be exhaustion days. Therefore, as a short term trader, I would be extra alert tomorrow, especially with my trailing stops. Also, I could be tempted to add to my longs on a substantial breakout, but only with hedged positions.

Nifty Index updated on 04 July 06

Disclaimer: These are my personal thoughts and not trading advise. To view the full chart, right click on the thumbnail and open in new window.

Another steady day in the markets, albeit, with a downward bias. Today the Nifty extended its closing weakness of Monday. The movement of the Nifty seems in the nature of consolidation rather than the beginning of a downward movement. We may see tomorrow continue downward in a ranged move till mid-session. After which, the probability seems high that the Nifty resumes its upward movement.

From an extremely short term perspective, a nervous trader could have closed long, as the short term trendline has been violated. But a trader with a slightly longer term horizon could still have remained long. The previous swing low of 3115 has still not been violated. Possibly it could be tested tomorrow.

As of now, the Nifty remains a “buy on dip”. The projections from the 2600 low suggests that we may see the Nifty achieve the 3250 level.

At this point in time, there is nothing to suggest otherwise. We could change our mind when we see how the index behaves at the previous swing bottom.

Nifty Index updated on 03 July 06

As usual, first the disclaimer: This is not trading advise. To view the full sized pictures, right click on the thumbnail and open in a new window.

After the spine tingling excitement of the last fortnight, today was a rather ho-hum kind of day.

The movement was upwards biased, but the gut wrenching intraday volatility was thankfully missing. As a result, the volumes were quite low. The momentum of the Nifty’s movement towards the upside is also slowing.

Apart from my usual price chart with the fib levels, I am also uploading my regular hourly chart, which is based on indicators devised by me. I take cues from this chart to get an overview of the market. On the hourly chart, we have not seen any weakness as yet. The oscillators and indicators are both pointing to the market being overbought for the short term. That does not mean, that we go out and short the market tomorrow. As a trader, I would await a confirmation and then only close my longs. I would short the market only on the breaking of lower support levels.

As of now, it does seem that the Nifty still has steam for another 50 to 100 points upward, in this round.

Traders must decide their time frame to approach this market. Those among us, who make repeated attempts to “catch” the top, are sure to lose money.

It does seem that the Nifty is hammering away at the red supply line overhead. And since the supply line is rising, it seems positive for the Index.

Since the present trend is still up, stay long, till the Nifty breaks some important support level to the downside. The support level must be decided by traders, depending on the time frame in which they are looking at the market. I would again repeat, as abundant caution, please do not try and attempt to short what seems to be a peak.