Cash The Chaos

Nifty(5269): Nifty formed a 'Doji' pattern after overshooting the important resistance at 5275. We have momentum disagreeing with price rise above 5217 on hourly and daily time frame. This is normally a precursor to a drop.

Nifty - Weekly charts

On the weekly time frame, Nifty is above the weekly trendline from the Nov 2011 highs. A close above this level today would tell us that we are not in the same environment that we were in since Nov 2011. Alternately, a strong rejection from here would mean some bearishness.

Likewise for many important inter-related markets like the Dollar Index, Gold and S&P 500 the markets are poised at a critical time and price window.

Gold - 1765 is a 61.8% Fibonacci retracement level. As I write this, it is coming off slightly from the overnight high of 1761. Euro - the zone of 1.32 to 1.35 is important and the 17 nation currency has got rejected twice off this level. The US S&P - VIX is at a dangerously low level, momentum indicators are warning off lack of fire power.

Time: Feb 6th/8th happens to be an important time window for a short term peak ATLEAST for equities.

The bottom line is the risks of being long here is very high - if you are long be nimble.

Nifty support and Resistances: A drop below SUPPORT of 5225 would mean the first signs of  corrective decline to the move from 4530 to 5291. We have to evaluate if it might mean something bigger. A bare minimum correction of 4950 should come through.

In the event Nifty continues to head higher, RESISTANCE is at 5345.

Nifty(5204): Nifty formed a hanging man pattern on Friday, just under the 200DMA. Hanging man pattern needs a follow through sell off else the signal would be rendered void. The first sign that this market starting to correct would be when Nifty dips below 5162.

The Euro has come to perfect level for it to end the counter-trend rally and begin a decline. AND we have an European summit today! Seems like a perfect setup.

The environment seems to start looking like October 2011 when the equity markets were ignoring what the bond markets were saying. Portugal has gone over the cliff  and equity markets are not even taking note of it - watch out Portugal will very soon be making headlines and "surprise" everyone.

On Nifty, in Elliot wave terms, even if we see this market as a Triple Zig Zag - the current decline seems to be incomplete.

Nifty Daily Charts

The interesting thing with this interpretation is that in each of the ABC patter. C wave is almost perfectly 1.618 times A. So if we have an overlap at 4800 on the Nifty when this pullback comes through the target for it could be much lower than 4530. But that is a topic for another day.

Nifty supports: 5162, 5127 and 5040. Resistance 5225, 5275.

Nifty(5046): The market is pausing around the resistance of 5065-70 ahead of economic policy. An important signal is coming from the Banknifty - a "gravestone doji" on this index right at the ideal zone of 9500-9800.

Bank Nifty - Daily Charts

Gravestone Doji are important signals but they need an immediate follow through. We need to see a sell off in Banknifty today too. If it comes through this rally is over.

Indiavix too saw a spike down to 18 day before yesterday. The spike was the lowest level since July of 2011. So there is a good possibility that we have seen complacency extreme for the short-term.

Nifty Resistance: 5065-70, 5100 and 5135. Nifty support: 4980.

Nifty(5018): Nifty continued to rally and closed above 5000. Round numbers are not resistances but they help in pushing sentiment to the extremes.

Let's quickly do a check on the positives and negatives.

Whats favouring the bearish case?

1) Our proprietary which has a stellar record since 1997 says the bear market is not over.

2) The rise still looks corrective rise - a three not a five in Elliot wave terms

3) Sentiment on Nifty and INR are getting very one-sided and excessively bullish ( I'm hearing calls for 5600 Nifty and 2008 highs for for ADAG)

4) IT stocks may have rolled over the bearish side

What's favouring the bulls?

1) The breadth so far has been encouraging.

2) Markets have been penetrating through big resistances

3) Reliance trying to offset the negatives through a buy back

So here we are with Nifty making a dash at the December highs. It is very likely that if market is going to reverse it is going to do it either today with a pop at open or on Monday.

Nifty Resistance : 5065-5075 Support 4960. Watch for the first 15mins, note the highs and lows at 9:30IST. If market drops below the low, high chances that markets have seen an exhaustion. Try a VERY SMALL short with stop at above 5100 or the high of the first mins IF AND ONLY if Nifty drops below the low you have noted.

Nifty(4873): Not much changed from yesterday's price action. The same conditions prevail. Either Nifty's corrective rally is ending or there is little bit of steam left (see yesterday's chart).

Reliance Daily Chart

The above chart is that of Reliance - the stock is hovering near its 52 week low and has not even been able to mount a corrective rally to its 50 DMA.

INR daily charts

Also the Indian rupee is starting to loose strength. On the chart above, the red line is an important support for the Dollar. The candles here are starting grow smaller and signals loss in fire power for further strength for the Indian rupee. A reversal bar here will be an ideal entry for Long Dollar against the rupee.

Be patient, the market will present a juicy shorting opportunity.

Support for Nifty: 4800 Resistance 4920-4950.