In the weekend post on 11.7.09 i had discussed two likely scenarios. At that time i had said that Alternative I was likely. However, Nifty future did make a new high of 4730.50 and retested yesterday to 4730 before falling to close the current week at 4480. Contrary to my expectation, market has made a new high and again broken down from the neck line of the bigger Head & Shoulder, thereby suggesting that it should make a new low. While it may be premature to speculate on that but the velocity with which market shed about 265 points (5.6%) i feel it definitely calls for review of the big picture - and hence this post. At this stage i can only state that Nifty Future has not broken last weeks low of 4415 and possibility of a bounce from 4450 as given in today's post can not be ruled out as yet. However, i would consider that the possibilities given in Alternative II will gain credence if Nifty future trades below 4282 levels in the coming weeks. As such we have many gaps to fill. Till then we can consider the current fall as a helathy correcttion. I reproduce the post for ready refrence.
Ketan Asher.
QUOTE
In my yesterday’s post I had mentioned to sell at 4200, assuming that Nifty future after breaking 4122 will go up to 4200 (Neck Line1 level shown in the chart) and then fall. Instead, Nifty future made a top at 4129 and then fell about 100 points in last one hour. Incidentally, 4129 is on cardinal cross 0n the Sq of 9. In the last week, Nifty Future has fallen by about 520 points and is now in the uncharted territory left by the market after the Gap open on 18th May. It would be worth noting that this type of huge Gap (or is it a Tunnel) has no precedent and hence we do not get any definite clues as to how the market will move till it fills this gap. I have discussed below alternate scenarios with argument for and against each of them. Alternative 1: Nifty Future takes Support near yesterday’s level on the Trend Line (shown as TL 1) and 1/3rd Retracement level @ 3976. Next week it should test Neck Line 1 @ 4200, and then again falls towards second support level near 3800 (shown as TL 2) and gradually fall to about 3600 to fill the Gap as well as achieve the Head and Shoulder target of 3622. This process may take about 5 to 6 weeks. Alternative 2: Nifty Future takes Support near yesterday’s level on the Trend Line (shown as TL 1) and 1/3rd Retracement level @ 3976 or on the next Trend Line at 3800 (shown as TL 2). Incidentally, if Nifty goes up to 3800 and reverses from there it will make Right Shoulder of the bigger H & S. It then goes up to break 4200. In this scenario as the H & S pattern has failed, - not gone up to 3622 to complete the target, theoretically it should make a new Top above 4700.
At 4700 I have drawn a Neck Line in Red color (shown as Neck Line 2). For some Global and local reasons, if market breaks below 4700, it will amount to failure of this Head & Shoulder pattern (the bigger one with Neck Line 2) and hence it should theoretically make a new bottom – below 2500 – a little scary and appears to be an unlikely scenario today. As of today, the only argument gong in favor of this scenario is that we have to see that all the Gaps left during the current up move, eventually get filled at some point of time in future.
Conclusion: As of today there are no compelling reasons to believe that Alternative 2 can happen as the money sitting on the side lines will find its way into the market at lower levels and market will continue to get fresh money. In this case Alternative 1, seems to be a more practical road map for the market in the coming weeks. In either scenario, Neck Line @ 4200 level will hold the key to the future market movement.
I thought of posting the above arguments, with the hope that the reader will be able to adapt to the situation as it devolps in the coming days. Moreover, for those who had the courage to sell at 4500 - 4700 should find the levels of 3600 - 3700 levels (as indicated in Alternative 1) attractive enough to replace the stock for a pull back rally. Reader comments are welcome.
Have a nice week end!
Ketan Asher.
UNQUOTE
Words of Wisdom
Expect nothing, be prepared for everything.
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