Last leg of correction is on cards:
Suresh Iyer, Technical Analyst
Asit C Mehta Investment Interrmedaites
The Nifty witnessed positive moves during the first two days of the last week. It opened at 4,536.30 and made a high of 4,679.75. The next two days the Nifty lost the early gains. On Friday, the Nifty lost heavily due to the unexpected high inflation. The Nifty made a low of 4,333.60 and closed at 4,347.55.
On a weekly closing basis, the Nifty lost 3.75 %. The open interest in Nifty futures were on the higher side, which indicates that the going ahead the movement would be steeper with the increased volatility in the coming days. The earlier positive market breadth turned negative on the last tow days. The volume increased gradually towards the closing of the week and particularly it was on the higher side on Friday. The Nifty future was trading with discount during the whole week.
In the daily charts, the Nifty was facing tough resistance with 5 and 10 day `SMA` on a closing basis. In the last week, it closed above 10 day `SMA` for three days. However, it closed well below the 5 and 10 day `SMA` towards the weekend. During the rise, the Nifty faced with the resistance at 20 day `SMA` and failed to cross the same. In the coming days, a close above 20 day `SMA` will be a first indicator for the short-term trend reversal. Otherwise, every rise would become to make a further fall only. The 5-day and 10 day `SMA` turned down, which indicates further down side is quite possible. The Nifty closed below the crucial 13,34 and 89 EMA.
The RSI generated a fresh sell signal on Thursday. However, the RSI is nearing to the over sold zone. Both the stochastic are once again come to the sell mode. The ADX is in sell mode. The failure of faster line to pierce the signal line of MACD and started to move down, is a bearish sign.
The Nifty made a lower close in the daily charts, since August 2007. In the daily charts, the Nifty is forming a lower top and lower bottom formation so far. Since
In the weekly charts, both the stochastic are in sell mode. However, the 5,3,3 stochastic is in deep over sold zone. The swing trade is negative. The ADX is in sell mode. The RSI is in a sell mode. The Nifty closed below 5,10 and 30 week SMA. The medium term trend turns once again bearish.
In the monthly charts, the MACD is in a sell mode. The Nifty breached the previous low of 4448.50 and closed well below that level. However, any monthly close below 4143 will led further weakness in the coming months. In the quarterly charts, since October 2003, the Nifty is trading above PSAR. This support got broken (4448) during the fall. In previous three occasions, the Nifty fell further 7 % to 21 % from the break down levels.
As per Elliot wave theory, the Nifty is in `c` wave of 4th wave. The probability for `c` wave to end is at 4050-4060 or 3849-3859 or 3504. After that, the Nifty is expected to enter into the 5 the wave.
Outlook for the Week
Last leg of correction is on the cards.
Based on the above rationale, the Nifty is expected to see more volatile trading sessions in the short term. The Nifty is expected to trade weak in the coming sessions. The Nifty has support at 4330, 4297, 4143,4055-4065(may be a reversal point), 4002,3908, 3849-3859 (may be a reversal point), 3774 and 3504 (may be a reversal point) .The Nifty has strong resistance at, 4370,4458,4491-4500 (strong for short term) and 4616.
Strategy
Traders can adopt the strategy exit /short on every rise.
Preferably choose derivative strategies. Investors can be on sidelines and the fall comes near to the above-mentioned reversal points, they can consider buying with medium term perspective.
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