It is very critical for bulls not only to sustain above 9685 but also show some signs of strength by conquering immediate hurdles on their way on the upside.
By Mazhar Mohammad
As the great writer Mark Twain famously said history doesn’t repeat but it often rhymes is very apt in the context of financial markets as chart patterns get repeated at several points in time.
If we look into the price behaviour of Nifty50 since 2009, uptrend of 6–8 quarters lead to severe falls, both price-wise as well as time-wise.
At this juncture, after six-quarter up moves with a ‘Shooting Star’ formation on the quarterly chart, the weakness is getting more pronounced on the weekly time frame charts as well. It is justifiable to fear similar topping formation at this point in time.
Interestingly, the move from February 2016 lows of 6,825 consumed 7 months before topping out and the last leg of the rally from the lows of 7,893 of December 2016 also exhibiting similar topping formations, after a rally of 8 months with clear-cut technical breakdowns.
Last week, Nifty50 lost around 277 points and registered a ‘Bearish Belt Hold’ formation on the weekly charts. With two technical breakdowns in the form of critical moving average which propped up the prices in all corrections for the last 7 months besides breaking down 28 weeks of ascending channel which has multiple touch points does not auger well for bulls.
These kinds of breakdowns have the ability to adversely impact the larger trends going forward. However, as the index recoiled almost from the right technical points of 9685 we have been projecting in these columns there can be a ray of hope for bulls as long as it sustains above this point.
But, unfortunately, technical parameters on different time frame charts are deteriorating and critical supports are being tested.
On the monthly charts, one such level we are keenly watching is 9650 which is appearing to be a critical support. Hence, in the month of October if this level is violated on closing basis correction can be very severe with a major top around 10137 levels.
On such a breakdowns, we will not rule out a bigger target of 9,200 for Nifty50 going forward.
As we have pointed out on 18th of September in our article “Beware of Suckers Rally” the disastrous C leg of the corrective structure is in progress from the highs of 10179.
Ideally, Wave C of Flat should go below 9685 to end the corrective pattern but the index has rallied from the low of 9687 mark and made an attempt to bounce which was sold off on an intraday basis in last trading session.
Hence, it is very critical for bulls not only to sustain above 9685 but also show some signs of strength by conquering immediate hurdles on their way on the upside.
If the critical resistance of 9921 is cleared then traders can initiate long positions in the short term with higher confidence. But, at this juncture best course of action appears to remain neutral and look for some signs of strength before initiating long side bets.Disclaimer: The author is Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.