Jun 142011

The Nifty has been in the range of 5600 to 5400 for the sixth week and has kept everyone guessing as to which way the range would resolve. As a good trader, one needs constantly play devil's advocate to your own views. So, here are the charts that present both the bullish and the bearish views.

If you are a bull:

Nifty - Daily Charts - as the bulls would like to read

The above Elliot wave count assumes that the November high was only a portion of a larger bull run and further gains are yet to follow. The violet wave 1 ended at the November highs and the subsequent decline into the January lows of 5177 completed the corrective wave violet 2 (which sub divided as a zig-zag red ABC).  This would mean that the move to the May high was wave 1 green (impulsive)  and is part of the powerful wave 3 violet which is likely to reach levels way beyond the all time highs.

Line in sand - If Nifty dips below 5320 it would weaken the bullish case though only a breach of 5177 would completely negate this option.

What's in favour? - Despite the global and regional weakness, India has been holding up well in the last few days.

What's against? - Reliance and ONGC ,the two heavy weights, are showing weakness. A big negative pattern  is under construction in ONGC. The assumed wave count to the May highs is a truncation - which normally does not help the case. The blue dotted trend-line shown is also likely to place a lid on the upward move.

If you are a bear:

Nifty - Daily Chart - as the bears would like to read

The bearish case has multiple options and I have taken the least bearish option. If we assume the November high was the end of violet wave 1, the decline into the January lows was only part of a larger correction Violet A, that sub-divided into red ABC. The rise into May high is assumed as corrective in nature, Violet B (which again sub-divided as blue ABC). The ongoing move from the May high is part of the Violet C wave decline which is expected to sub divide in to 5 waves. Of this 5 waves we have probably completed the first wave of the decline (blue 1 of Purple C) and we are the beginning of a powerful wave 3 (blue 3 of purple C) that would take market below 5000 (black arrows) or the corrective wave 2 is yet to complete(blue dotted path) before the powerful blue 3 of purple C takes Nifty well below 5000.

Line in sand - A move above 5650 would weaken the bearish case though only a breach of 5944 would force us to suspend the bearish bets.

What's in favour? - Exactly what is against the bullish case favours this - ONGC and Reliance. Also, the Dollar Index seems set for a powerful move that is likely to unleash a destructive move on most risk assets across the globe.

What is against? - Nifty has not managed to consolidate on the advantage of taking out the March lows and move briskly below the January lows.

PS: If you would like to know which side i'm leaning - i've been on the bearish side since November and I continue to do so.

  18 Responses to “NSE Nifty : The bullish and the bearish possibilities”

  1. Outstanding Analysis! 🙂

  2. Hi Jai

    Would not necessarily agree with the labels. I mean there are more possibilities which is always the case.

    My question is if one is a swing trader for him next 2 weeks looks more bullish than bearish as Nifty is consolidating. For such a player what is better way to play this move. Go long in futures at cross of 5530-5540 or write put options at 5400

    • Hi Nitesh,

      Definitely there are more possibilities – in fact I have clearly stated and underlined that I have taken the least bearish count. I do all my posts with “Teach a man to fish…..” in my mind. I cannot comment on what asset class would suit you without a complete understanding of your risk profile. If I were to swing trade , I would not put a trade on the bullish side until 5605 is breached.

      Hope that helps.
      Good trading to you,

  3. Finally the Elliot wave analysis…thanks…:)
    As usual beautifully done…:)


  4. hello sir
    how are you.once again got a chance to read you perfect interview on moneycontrol.com.please post your schedule

  5. Thanks Zubair. I’m on UTV-Bloomberg tomorrow(17th) at 8:30 IST. The media schedule page is not showing up on the blog – will fix it soon.

    Good trading to you,

  6. Dear Jai,

    Its good to have such an indepth perspective ..Infact, if we combine the fundamental perspective and overall global context..it strengthens your/out viewpoint..

    The most interesting point in my opinion you have made is about RIL and ONGC..I did not include them in bear-basket until today..are you viewing this purely from technical standpoint or you have another fundamental reasons that may be we are missing..

    I have been shorting banking/auto stocks since this month , mainly SBI,VijayaBank and TataMot and have intiated a fresh short positions in last few days..Undoubtedly banks are at their key support level and may take a while to go down further..Auto stocks like TataMot ,i believe has a significant space left on downside..

    Now, appreciate if you can share your view on Banks/Auto and specifically to stocks i mentioned ..from leading the downtrend..and as a choice i have made in shorting..(i have struggled to make choice and never thought of RIL/ONGC..)..Plz advise..

    warm regards,
    vimarsh p vasavada

    • Dear Vimarsh,
      Yes, You might get an extra dimension. I have read some star traders have done that successfully.

      My view on markets is unadulterated technicals. To me technicals are the hidden fundamentals – I do not need to know the why, as long as I know what and when 🙂
      Yes, it does seem that over the medium term tatamotors has much bigger downsides, atleast 880 if not much lower. While I see the downsides of SBI and Vijaya limited to 2050 and 58 respectively. what is clear however at this point in time is that, they have not bottomed yet. Ofcourse, I could be wrong, but that is my interpretation from the charts.

      Good trading to you,

  7. Thanks Jai,
    Your views are of great help..I am keen to know which specific pattern you employ to play/carry-forward your positional trades i.e. besides trailing stop loss, pyramiding/averaging etc.(“What If” SBI reaches 2400) do you employ specific techniques..Based on my little readings the big successful traders typically mentions simple things like trailing SL, partial profit booking etc..is that the real case or you/they do something different..I understand that sometime its toughest to employ simple stuff..but would love to know your perspective..

    warm regards,
    vimarsh p vasavada

    • Hi Vimarsh,

      The most important thing to me is to constantly look out for evidence opposite to the way you are positioned. In Apr 2010, I saw correction potential of up to 4300 on the Nifty and was positioned short. But I realised at 4900 & change that market had put in a low at 4786 that was not going to break. I bailed out and owned up that I was wrong and called for a new high. That I think is the key. There is a fine balance here – if you bailout too soon, you will miss the big moves but if you bailout too late the losses grow in size. This will come with experience (read after learning from losses :)) I guess this is what George Soros said “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

      Good trading to you,

  8. Dear Jai,

    Very well said – there is immense wisdom in what you said – I guess that’s the reason I keep refreshing this page more than few times everyday! 😉

    After today’s sharp fall – due you see a potential of a pullback in this week or anytime soon for that matter?

    Thanks & Regards,

    • Hi Parag,

      Thanks 🙂

      Usually when a range breaks, as it did on Nifty (5400-5600), markets do not bother about the oversold state and they continue to proceed in the direction of the breakout. In the current case, ONGC, Reliance, TCS the top 3 biggies have taken out major supports. Hence, firstly markets do not have any biggie to piggyback on and secondly, bcos of this bounces should be transient. If I had to initiate short positions today, I will place some staggered bets on July puts, something like buy 1/3rd now, build IF there is an oversold bounce. (If you see the charts of GTL, they were oversold even before today and they still collapsed big time!! So an oversold state need not gurantee a rally)

      I will add here – as long Nifty 5177 holds, bulls may still have a very small toe hold.

      Hope that was useful.

  9. Dear Jai

    Excellent blog u have got here.I usually buy for delivery when markets go down.Do you think i can get into RIL as of now since it has gone down or for the matter any other stock.should i expect any signicant downside in nifty this month itself? Plz advise.

    • Hi Rakesh,

      Thanks and welcome to my blog. Time is the most difficult market component to judge. Here is my my reading though. I expect Nifty to reach 4800 around 15th July. I have been saying this since Jan/Feb. Reliance below 900-890, has no major support till 700-750.

      If I were you I would still wait a little longer to pick up stocks for delivery.

      Good trading to you,

  10. Thanks Jai,

    I guess, i will re-read the Soros’s interview..Thnx again for sharing your wisdom with detailed experiences..

    warm regards,
    vimarsh p vasavada

  11. […] my June 14th post, we discussed the bullish and bearish possibilities for the NSE Nifty and had mentioned that […]

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