Technical: Nifty Trend Analysis, May 2011 : Ambit Research

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Technical: Nifty Trend Analysis, May 2011

For the past four weeks, the Nifty has been range bound in the trading band 5750 to 5950. We favour a bearish stance on the Nifty as long as the index is below the 5950-5980 level. Our technical studies on the daily chart suggest that for the next month the Nifty could trade between 5930-5950 on the upside and 5580-5600 on the downside.
For traders this is a no man’s land, as at the current levels, the risk-reverse ratio is not favorable either for going long or for going short. However, those who are already short on the Nifty should hold with reversal above 5950. For the bulls, we suggest that they take long positions only if the Nifty closes above 5950.
In the sections which follow we use five types of technical studies to understand how bulls and bears should trade the Nifty:

• Moving averages: On the daily chart we have witnessed that the 10DMA (5830) has fallen below the 20DMA (5836), having previously crossed 20DMA from above. This signals a bearish Moving Average crossover. The Nifty is also trading below these averages but it is trading above 200DMA, which is at 5745.
• Momentum oscillators: Both the MACD and the RSI are in SELL mode on the daily chart. The RSI is trading in the neutral zone but is moving downward. The MACD has triggered a SELL and this indicator is rapidly moving downwards and getting closer to the zero line, which should trigger further selling in the market.
• Support resistance: For the next month the near term support is at 200DMA, which is 5745. Below this, the last strong support level is at 5690. Post this the Nifty could move sharply downwards to the next support level which is at 5580. On the upside, the resistance and reversal points for the downward trend are at 5930.
• Price pattern: On the daily chart the Nifty is forming a Bearish Broadening Pattern with the downside target for the next month at 5580. This pattern displays a diverging trend line suggesting that in the coming months the range will get broader with resistance at between 5930-5950, and support, first at 5580, and then at 5550.
• Elliot wave: As per the Elliot wave, the rally we witnessed in March was the X wave. As the month of April has closed in the red, it appears that the X wave rally has concluded and the Y wave (which is the bearish wave) has begun, with the first target being 5580. This wave count would be violated if the Nifty closes above 5950-5980 first (before testing the 5580 level). In that case we would revisit the count (the first target).

Ambit Research