Nifty Trade Update - 21st Dec

Update 10:27 AM:  Nifty CMP  10858- Sell

We have been expecting nifty to make a top around this area ( like mentioned in yesterdays post)

Note: Spot prices mentioned

Update 11:30 AM: Nifty CMP 10835- Please note nifty has not yet given any crossover sell confirmation yet ( inspite of this 100+ point fall today). Short call is merely on the basis I have been mentioning in my posts. We carry shorts if trade is moving in line with expectations or we exit ( like we did yesterday). So it could be slightly risky as we are trying to call out a top in markets (something which one rarely gets right). Overall trend of the market changes to down only when 10700-10720 range is taken out.
so just to reiterate, I see a strong possibility of a reversal hence these short calls. Once I get confirmed signal then we will initiate more trades (if you want you may wait for confirmation).


Update 2:25PM: Nifty CMP 10770 - Hold shorts for now. Will update if anything has to be done.  So far trade is moving in line with my expectations. (less Risky traders might want to book part profit)


Update 3:15PM: Nifty CMP 10740 - Carry Short for next week (less risky traders can book profits)

Enjoy and have a nice weekend. Trade well, Trade wisely.

Nifty View: Update for 21st Dec 2018

Near Term Trend:  ↔️ (Sideways/Corrective/Near maturing)

Market Update: Nifty opened with a gap down on the back of overnight fall in US equities and weak Asian markets but as the trend has been recently, Nifty outperformed each market and closed almost at par.

I have been expecting Nifty to make a near term top around this level and hence went short in the morning (10AM) around 10932 levels (Nifty did fall to around 10880 levels after that)  but overall movement of Nifty was not as per expectations so we exited from shorts at almost same price around 3pm. Even though our SL was a 'new high' and it was not triggered still a strong trading above opening rates suggested a bullish overtone. In such cases its always best to exit.

Nifty has still not given any negative crossover signal and remain very much in +ve trend. However and as per my view and analysis there is  probability that a top could be made around this area either now or in next 2-3 days so we have to be on look out for a trading opportunity on the short side.

For now Nifty has neither validated nor rejected my diametric assumption so there is still a likelihood of Nifty reversing from these levels, however if reversal has to come then it should come soon now else we are looking at extending this correction (both price wise and time wise). 

Even though Nifty covered almost all the losses intraday, it made a lower low and a lower high today which is an encouraging sign for Bears. Nifty now needs to close strongly above 10985 levels to negate the negative impact.

Another thing Favoring Bears is that Dow and S&P have broken their Feb lows already, so not sure if this outperformance by Nifty can continue for long. May be not today and may not tomorrow but soon both indices are likely to catchup ( Either Dow gives a strong rally or Nifty start falling)

Nifty Daily Chart

Trading Recommendation: Entered short around 10932 and exited almost at par. Need more sign of weakness to continue staying with short positions. 

Nifty Trade Update - 20th Dec

Update 09:55 AM : Sell Nifty @10932 CMP

As mentioned in previous post, considering various factors, this could be the topping area for Nifty with G leg of diametric almost completed. Short positions can be taken here with a SL of a new high.

Update 03:05 PM : Buy Nifty @10935 CMP- (exit from previous short position- no fresh buy)
Even though it fell to 10880 after our initiation,  the overall movement is not on expected lines so better to exit for now. Will enter again later.

Note: Spot price mentioned.

 

Technical Learning: Contracting, Ending Diagonals and Expanding Triangles

To continue with triangles, let me cover 3 types of triangles today. Contracting , ending diagonals or wedges and Expanding. Like all patterns, these too can be found in both Bull and Bear market. Bullish or bearish pattern is determined by direction in which prices are expected to move once the pattern is complete. In the below examples the prices are expected to reverse downwards hence these are 'bearish triangles' ( even though the prices in the pattern itself may be moving up). The shape of these triangles in bullish will be exact opposite i.e. 'A' leg will be pointing downwards.





Contracting, ending diagonals and expanding triangles

Important characteristics

Contracting triangles:

1. 'A' leg defines the overall range of pattern and is the biggest leg and rest of the legs are formed within same range
2. Each subsequent leg is smaller than the previous leg and the overall pattern forms a compressed or contracting structure (compressing price action just like a spring)
3. When the pattern is complete, the compression of prices stops (its unsprings) and gives a violent thrust
4. Prices move very fast once the pattern is complete
5. Buy/sell is recommended once the price breaches B-D support line ( line joining B and D leg of the  of triangle)

Wedges/ending diagonal:

1. Similar to contracting triangles only difference is that C leg though smaller than A leg, makes a new high.
2. 'D' leg is smaller than B and must finish above 'B' end point.
3. 'E' leg may or may not cross C but it should remain smaller than 'C'
4. Again, buy/sell is recommended once the price breaches B-D support line

 Expanding Triangle:

1. Most confusing of the lot as prices keep on expanding and making newer higher and newer low with every move
2. E leg is the largest and can be as much as 261.8% of C leg making it difficult to predict the end point
3. Price action that follows upon completion of triangle is very slow ( making it even harder to trade)
4. For entry point, either wait for  E leg to touch A-C line and reverse from there or if it crosses A-C line and enter below it again then buy/sell.
5. Though its not mentioned in the chart above, E leg can sometimes be smaller than D leg. In such cases wait for prices to go below D leg before initiating buy/sell

I know this can sound fairly complicated but trust me its not that difficult once you start recognizing patterns.






 

Nifty View: Update for 20th Dec 2018

Near Term Trend:  ↔️ (Sideways/Corrective/Near maturing)

Market Update: Market opened with a gap up and maintained the positive trend throughout the day and closed 60 points up at 10967 levels. Nifty today crossed the 10950 levels and made a new high. Still that doesn't change the overall character of the market and it remains a corrective leg. All up moves from 10K levels are carrying same characteristics and are pretty slow. Surely it can carry on for few more days but going forward Nifty might face strong resistance around 11000-11150 levels ( which is  also near the 61.8% of the total retracement). Technically speaking market can even retrace as much as 80% ( since the fall from 11750 to 10k was a double corrective).

Nifty might change trend tomorrow or might take few more days but the overall scenario and near term direction remains same. If my Diametric assumption is right then Nifty should turn back from these levels as both price and time wise the last (G) leg seems to be complete. Further rise in Nifty from these level would mean something else is cooking up. For now we are on the look out for a reversal point to short Nifty at appropriate level. I don't see much headroom for Nifty to go up from here but still we need to wait for a reversal point. However If we don't get a reversal point then we will wait.

Thing which are favoring Bulls right now are a) lower VIX and b) put call ratio ( its totally in favour of bulls right now) and c) shorts which got trapped at lower levels on negative election news.

Having said this, I still see very little value in going long at this stage  but that does not mean Nifty can not rise 200-300 points from here surely it can but still we prefer to wait.


Trading recommendation: No longs or no shorts at CMP. Wait for reversal signs to go short. As per my wave counts top could be in formation let markets validate or negate the pattern first.

Technical Learnings: 7 legged Diametric patterns

I was hoping to cover all triangles first before I move on to 'Diametric' but since in todays post mentioned the possibility of Markets making a 'Diametric pattern', let me explain it today itself.

Diametrics are corrective  patterns and once they are complete the price tends to move sharply in opposite direction ( similar to triangles). But unlike triangles Diametrics have 7 legs and are extremely difficult to trade. Difficulty arises from the price movement. Just when you think a new high is formed price will start moving down and just when you think you have a new low price will again start moving up and to complicate matter further, Diametrics have 2 shapes and its very difficult to identify them till they are almost on the verge of completion.




7 legged Diametric Pattern

Point to note:

 

1. Diametrics have two types: A) Bow type i.e. contracting first and expanding later and B) Diamond shaped i.e, expanding first and contracting later.
2. Price move in opposite direction once pattern is complete and its usually very fast
3. Price action that follows after diamond type completion is usually faster than bow types ( so diamond type are more bullish/bearish)
4. In case of Bow type the G leg can cross or end below E leg. if it ends below E leg or in other words fail to cross high of E leg then its called as 'G failure'
5. If G leg does end as a failure then the price action which follows is very very sharp. sometimes its so sharp that it doesn't even allow traders to enter into a trading position
6. Both these patterns can also be read as 'double corrective' i.e, ABC-X-ABC ( however I prefer to read them as one)
7. Diametrics basically signal confusion which is there in the markets which is explained by overlapping price movements and once the confusion is cleared i.e. diametric is complete, what follows is a clear trend
8. And like all patterns diametric too can be found in both Bull and Bear markets. Above example is a Bear market example ( since prices are expected to move down once G leg is complete)
9. Time action between most legs can be similar (i.e. all or most legs might last for same number of days)

 

 

 

 

 

 

 

 

Nifty View: Update for 19th Dec 2018

Near Term Trend:  ↔️ (Sideways/Near maturing)

Market Update: Market opened weak in line with weak global cues and traded negatively for the first hour but soon reversed the momentum and ended the day at 25 points up around 10910 levels.
We had gone short in the morning around 10825 but were forced to close our position around 10905. Nifty had to cross above 10950 levels to give us a confirmation that its building a new leg upwards but a weak opening below 10850 suggested a likelihood of a corrective upmove which had either matured or nearing maturity. However looks like Bulls have some more steam left in them. Let me show you the below chart with my wave counts to help understand my point of view in detail.

Market finished a major corrective move in Oct end around 10K levels after that what we are seeing is another corrective leg ( its too slow and has overlapping waves). Move after 10k can best be described as a 'diametric pattern'. a diametric pattern has 7 legs ( ABCDEFG) and it can also be read as double corrective ( ABC-X-ABC).I prefer to read it a single move with 7 legs. Important characteristic of a diametric is leg is similarity between most legs ( usually time wise). Here you can see each leg is taking around 5 to 6 days to complete and today was the 5th day for G leg. I was expecting market to complete the G leg in the morning and reverse from there (but it can last for 1-2 days more). A leg of the diametric measured 600 points (10k to 10600) now G leg has almost measured 575 points in almost same time (10345 to 10915 so pretty close to A leg). Even though the down move didn't materialize today and if the diametric assumption is correct, we should see a down move starting pretty soon. On the other hand if Nifty start trading above 10950 levels then will have to see and modify wave counts slightly.

On the bigger time frame, this up move from 10K levels today has consumed 35 days now and as per the time cycle all bear/bulls move in 2018 have ended around 34-40 days. So there are plenty of indications that either this rally has matured or its very close to maturing. Off course this is just one of the probability as per me and everything will change if Nifty start closing strong above 10950.

Trading Recommendation: We had gone short in the morning and exited later with a loss of around 80 points. Even though there is no change in my overall assumptions we had to exit since trade today was not moving on expected lines. Will watch and enter tomorrow again if I feel so. Nifty is consistently outperforming global markets but theres always a risk of catching up so don't rely too much on this outperformance.