Jul 112011

On Friday, India's benchmark Nifty saw some brisk selling and markets finished near the lows of the day. The selling pressure  reversed 75% of the previous session's gain and thereby producing the technical pattern known as "Dark Cloud Cover" (DCC) on the daily charts.

Nifty - Daily Chart

Questions that come up: (1) was Thursday's thrust above the medium trendline connecting through November_January highs a fake-out? (2) Is it going to beget further selling; (3) How does one position - buy the dip or sell the rip?

I wish the answers were plain and simple. The Nifty is in the midst of a very complex correction.  There are various ways to interpret the movement that has come off the June low of 5195. What is however clear, whether one is bullish or bearish is that, that a decline is under way and only the amplitude is in question. At 5735, wave v was equal to wave i (see chart for labelling), which is a normal ending relationship. So the high at 5740 was just 5 points over the ideal scenario. If the current decline continues beyond 5480-70 zone, the odds that the high at 5740 was a head-fake would increase. As long as Nifty holds this zone of 5480-70, I see this corrective rise having potential to make an attempt at more push higher which may end slightly above 5750 or fail at 5750.

If I were a nimble trader with 1-3 day time frame, I would trade banks and cap goods from the negative side. I were a conservative trader, I would stay very light until Nifty drops to 5480 or breaches 5750.

  18 Responses to “Nifty’s dark cloud cover”

  1. Very well put…:)

  2. Pun intended…:)

  3. Hi Jai

    Great analysis..always see u on tv…follow ur views which helps to stay alert..thanks..so u think nifty can go down further..can we short the nifty and place a sl of around say 5700-5750 and what level do u think nifty can go to by this month.

    • Hi Basil,

      I had the advantage of seeing the ending relationship in Nifty playing out in real time (wave v = wave i). So my risk was just 20-30 points. From here on the stop of 5750 depends entirely on your risk appetite. If you want to play through put options – which offers limited risk, it may not be a bad idea too. I will not put a number on the month end level in this complex scenario.

      Best regards,

  4. Just when jai asks u to be nimble, u decide to be agile ? Eh… 😉

  5. Dear Jai,

    I made a small profitable short trade in BankNifty and SBI ..I guess nimble is the word.. 🙂

    I have re initiated short position today in Infy@2781 and SBI@2407.. Appreciate your view on these trades..This time i really want to dare to remain in both trades as i expect 2650 and 2200 levels in this week(more from fundamental perspective)..

    warm regards,
    vimarsh p vasavada

    • Hi Vimarsh,

      You know you are right when the price moves in your direction and puts little or no heat on your stop.

      Best regards,

  6. hi jai….

    it seems that ur study of the nifty is correct…….. it looks as if the nifty is following the blue line of your chart shown on the blog dated 30 jun..!!

    • Hi Optimus,

      So far that seems to be the case. As speculators, we should anticipate the moves but if it doesnt turn out the way we expect, we have to change tack.

      Good trading to you,

      PS: optimus as in optimus prime? 🙂

  7. Dear Jai,

    Thanks for your valuable observation and advice. I have one doubt – if nifty trades above 5750 once again, it will be well above the upper trendline. In that case, will that trendline become a support line and nifty going new highs become a reality? or are you expecting nifty marking above 5750 followed by a false breakout again and swift downward movement?

    thanking you,


  8. Hi Arun,

    For the sake of simplicity, let me say that unless 5944 is taken out at close, a new up trend is not likely and the medium to long-term would remain lower.


  9. Thnx Jai,

    For this input and also for the Tradition video 🙂

  10. Hi jai..

    Yes.. Optimus as in Optimus Prime.. Quite impressed by him…

    Just wanted to ask one thing .. Will the markets make new year lows before bouncing up or will it bottom out at around 5400-5350… Because all romours say tht the markets are thought to be reigned by the bears….

  11. Hi Jai,

    Hope u r well.

    Just wanted to pick your views on the Nifty ?

    I have also bought some serious quantity of DLF at 231. I just think fundamentally that the worst is behind them, Technicaly your thoughts sir ?

    Also shorted a serious quantity of SBI.

    Thanks for your time and help to us new comers. G’day


    • The speed of the move is going to be important from here on Rut – up or down. DLF and other real estate stocks look to me as if they are in their final leg of decline, though I cannot say with confidence they may have bottomed. SBI I think will remain in the range of 2550-2040. So closer to the top of the range, it might make sense to sell and at the bottom of the range to buy.

      Good trading to you,

  12. Hello Jai,

    Today, i did a quick short trade in Crompton Greaves..I saw your inputs on TV suggesting support at 190/185 levels..

    Now, is it worth reentering in CG at 205 level or i should religiously wait for a technical bounce back at 214/216/228(not sure on levels). From (bad) experiences i learn that its better to let go an opportunity then to get into a mess..and hence just getting cautious for reentry..

    warm regards,
    vimarsh p vasavada

    • Hi Vimarsh,

      That is the right approach. Always focus on the risk you are taking to attain an amount of return. If you cannot get atleast 1.5 to 2 times Reward to risk setup, let the trade go.


  13. As the market went down, it should go down, but please note that if it stays up, it will go up.

Sorry, the comment form is closed at this time.