Sunday, August 29, 2010

Nifty Tops and Difference from the Moving Averages

Lets see the last few times when the nifty hit major tops and its behavior after that. Thanks to Natasha for suggesting this line of analysis.

1. Lets take the 20, 50, 100 and 200 MA and the distances by which they were above the Nifty in percentage terms when the markets hit the Tops. As each next top is hit, the out performance is steadily coming down. This implies that the rises are getting slower.

2. Next I took the falls after each rise. They have more or less have been same, slightly decreasing. Assuming that 5550 was a top, average of last 3 falls gives us a target of 4920. I would put a target in the range of 4920-4950.

3. Lets look at the channel we have been moving in for almost past 1 year. Logically, now that it has touched the upper end, the immediate target should be 4950-4980 in the next 5-6 weeks.

4. The interesting part comes after we come to the lower end of the channel at about 4950. The channel width is 600 points. If the bull run continues, the rise should continue. If the channel breaks, the next target comes at around 4350 this is also the bottom made in last August.

5. The FIIs have sold for last 3 days albeit small amounts. This is the first warning sign. Also, the A/D line has been going down. Very few stocks have been advancing to declining. Thanks to Lakshmi Ramchandran for the graph.

6. The condition for break of 20 EMA has been fulfilled as in the graph attached. Now, it should move up to the 20 EMA or slightly above and then fall. This should take us to 5460-5480 in the early part of the week before falling again.

To sum up, the Dow has just fallen away with no bounces. A sell-off in 9 out of last 12 sessions for no apparent reason. Its not as if any Bank has shut down, or European crisis. Gold has risen to almost all time highs (just about 20 dollars from its previous all-time highs). RIL has hit 950 a 52 week low when the Nifty is near its 52 week high.

All the above factors seem to make me just a wee bit uncomfortable.

Editor's Note: The above assumptions are invalidated if the channel broken upwards above 5550.

No comments:

Post a Comment