Nifty Futures Sell Off to 5600 on Cards – A Technical View

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Nifty Futures seem poised for a sell off after having advanced a hefty 1342 points from the early June 2012 lows of 4770 to 6112.  In this blog post we  outline the technical factors due to which this decline could ensue.

Anecdotal evidence suggests that Nifty Futures have topped out

Nifty after forming a bottom at 4770 in early June 2012 has rallied sharply for nearly eight months on the back of  global liquidity.  The upward campaign has played out in a classical 3 forms (indicated by 1, 2 and 3 on the chart) as explained in Gann Theory. The Nifty Futures topped out at 6120 and since then we have seen a correction to this rally.  The anecdotal evidence suggests that the market has topped out and we are in for a major decline that could see the market decline sharply to levels much lower than 5600.


Technical factors indicate top is in and Nifty can slip to 5600 and eventually much lower

While it is a fact that the whether a top is in place is only a matter of conjecture, certain price action since the high of 6120 strongly indicate so. For confirmation,  we would require a price movement which is both faster in time and price than the largest of the previous three forms. This faster time and price targets are indicated by the boundaries of the green rectangle and suggest prices falling below 5500 before the end of February. Currently at the time of writing this blog post the market is at 5903, so only time will tell if this would pan out.

The technical support would incidently come from the 200 day MA, downward sloping Gann Angle line drawn from point M. and  the continuation gap (July 2012) between between 5450 and 5550 levels. 

Short term technical support exists at 5850 – 5875 levels     

The market has been in a slow free fall since the beginning of February and has taken support on the thick black trend line drawn from the higher bottom established in late July 2012. This is the fourth touch point on the trend line (see points a, b, c and d) and as per Gann’s Rule of 4, if this trend line is broken after 4 touch points it would mean further down sides. This trend line and the 55 day moving average (represented by the blue dashed line) along with minor penetrations has provided good support to the market in the past. However we have to remember that we are in the 4th touch point and there exists a very high probability of a break of trend line.

Another support indicator is the green coloured Gann Angle Lines. The third form which started from the point c, has largely stayed above the Gann 1×1 angle line (bold golden line). Once this line was broken, then as per Gann Angle Lines laws, market would seek support on the next angle, that is, the 1×2 angle line. Support from this line exists around the 5850 – 5875 levels. Minor support also comes from the black 2-M trend line at 5840.

So we have a confluence of the trend lines, 55 MA and the 1×2 Gann Angle Line providing short term support between 5840 and 5875. However the over powering force of the overall downtrend would eventually play out and overcome this short term support.

Checks to monitor that the down trend is intact

While we cannot rule out short term pull backs, we need to keep certain checks in mind which could provide evidence that the market might resume its up trend and nullify our forecast. As long as the market stays below the thick pink downward sloping 1×1 Gann Line, we can clearly assume that the down trend is  intact. Even if the market breaks the 1×1 line on the upside it should not rally beyond 6110 – 6120 levels which is the 50% retracement level and one of Gann’s favorite indicators.

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Before investing please make your own thorough analysis or speak to a qualified Certified Financial Planner / Advisor. Also read the disclaimer below.

Disclaimer: This blog is the personal blog of Vinit Bolinjkar. The views expressed in this article are entirely my own and do not reflect the views of my employer. This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither or myself accepts any liability arising out of the above information/articles.

logo Vinit Bolinjkar Head of Research, Ventura Securities Ltd
Vinit Bolinjkar
Winning Trades
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