Thursday, June 4, 2009

Cup and Handle in Nifty examined again

wildeazoscar said:

"the bottom of the cup is never found at the left but at the centre of the cup(here the 2250 low of nifty)....rather it was a adam and steve reversal, followed by liquidity madness, and once over, the market is likely for an unprecedented low followed by at least two more years of bear bear cold"

I have given below the weekly chart of the Nifty which has the possibility of a cup and handle pattern marked on it. Two problems that arise in the pattern are:

1. It is not exactly a rounding bottom.

2. Volume did not increase during the base formation.

wildeazoscar mentions another issue - that the final lows were made at the start of the base, rather than at the center.

Fair enough. This may be an imperfect pattern. If the Nifty were to correct and make some kind of handle, then cross 4650 on at least 50% higher volume than average, what should we do?

A breakout above 4650 after (a) a correction, and, (b) on above average volume will qualify as a buying opportunity. The pattern can be called cup and handle, or head and shoulder (inverted) but the message is the same - it should be going up. Now, this breakout may never come about, that is always possible.

wildeazoscar describes the lows made in 2008-09 as an Adam and Steves reversal. I think he is referring to an Adams and Eve reversal. The Adams low is sharp narrow and deep (Oct low), while the Eve bottom has a more gentle rounded appearance (March). This is a good decsription, although the lows in a cup and handle base can be made of an Adam and Eve combination.
wildeazoscar says that the market is likely to make new lows. I assume this is his/her opinion, since there are no patterns provided to support this statement. Again, the markets can do anything.

PS: I enjoyed responding to wildeazoscar's comments, which you can guess from the time stamp on this post.

PS again: The cup and handle has nothing to do with the short term moves in the Nifty where the futures has support around 4450 and suggest a breakdown below it.


Bhupesh said...

I would rather call it Head and shoulder (inverted) and key level for break out is 4649.85

A Student for Life, of Life (and of Markets) said...

I am commenting on the PS again portion in Sudarshanji'post

"PS again: The cup and handle has nothing to do with the short term moves in the Nifty where the futures has support around 4450 and suggest a breakdown below it."

It seems to me from last two days nifty price action that the 4480 / 4490 is turning out to be a near term battle ground for buyers and sellers. If this level breaks, there is a mini support at 4450 after which we can probably expect 4150.

Now that might be watched for as a dip??

A Student of the market

CHANDU said...

Thank u sudarshan ji

For ur call on CNBC,it has given 120 points profit.


A Student for Life, of Life (and of Markets) said...

Dear Sudarshan-ji,

I am putting a second round of comments just to express my happiness and gratitude to you for all the things I have learned from you.

You see, for the first time in my trading career, because I had a strategy, I managed to survive a day even though I had misread the market.

I ask for your and your reader's indulgence to explain what I mean by giving the actual trades.

First of all, I chose to trade with negative bias. As pre market preparation, I decided to go short around 4490, with initial stop loss around 4540. I also like to get to break even quickly since my capital is low. Now here are the actual treads:

First Trade:

Time: 10.08 am. Sell Short at 4494.25, Initial ( Mental ) Stop Loss @ 4540
Time: 10.24 am. Nifty at 4484, placed Actual Stop Loss @4512
Time:10.39 am, Nifty at 4472, moved Stop Loss to 4591 (BREAK EVEN after commission, YES!)
Time 11.00 am, SL triggered.
No gain no Loss on this trade.

Second Trade: ( still staying with Negative bias )

Time: 11.14 am: Sell Short at 4487 Initial (Mental) Stop Loss @4512
Time: 11.17 am: Nifty at 4493, placed Actual Stop Loss at 4504
Time: 11.27 am: Nifty at 4475, moved Stop Loss to 4485 ( In the Positive , YES!)
Time: 11.36 am: Nifty at 4463, moved Stop Loss to 4474
Time: 11. 45 am: Nifty at 4457, REALIZED STRONG RESISTANCE at 4450, moved Stop Loss to 4563
Time: 11.47 am: Stop Loss triggered"
Net Gain - 20 points after commission

What happened during the rest of the day? Watched the market recover ground, realized my negative bias is not supported by price action, chose to not participate.

What is the moral? If you have a reasonable strategy, and you stick to it, you have a reasonable chance of getting somewhere even if you misread the market.

Thank you again.

Indrajit Mukherjee said...

Thanx Sudarshanji, for again a nice post, and listening to my request of a post with signs of break out. As per my observations goes:
No.1) The bear market has ended (as we are well above 200 weekly MA). So, we now need to maintain bull market rules, i.e. buy on dips.
No. 2) Yes obviously breakout above 4650, will leave some ground to run till 4789 (61.8% retracement of the bear market fall).
No. 3) Not being able to close above 4650, can again witness retesting of 4450, or even 4100. I am worried about the 99+ weekly RSI-2 so far.


shaq said...

what do you mean by SL triggered when you say :
Time: 11. 45 am: Nifty at 4457, REALIZED STRONG RESISTANCE at 4450, moved Stop Loss to 4563
Time: 11.47 am: Stop Loss triggered"

4450 is a strong support right?and since SL u have is 4563 how did it get triggered 2 min you mean just booking profits realzing strong support at 4450??

wildeazoscar said...

thank you sudarshan for the P.S.

the wit almost got me hook, line and sinker.

as reagrds my betting for a bearish breakout, may i point out from the charts the following, with your permission:

1.If the market breaks below 2250, we enter a long bear phase, if it breaks above 6360, we enter a long bull phase(hope everyone agrees on that)
2.A break below 2250 is more likely from the following chart patterns that i am going to point out, if you allow:(all dates in mm/dd/yy format)
a)The negative divergence between the MACD Histogram on 11/12/2007 and 06/04/2009 confirms the bear trend. Just go back in the weekly chart and look at the effects of such negative divergences. in a bull market they inevitably started the b wave of elliot and in bear market the b wave of bear
b)take up the NSE Nifty daily charts with the bhavcopy volume and study the volume pattern with respect to trend between 07/22/2008and 09/11/2008 and compare with the move since 05/19/2009; are we not approaching a simple H&S reversal( or maybe a 2B top even) with the 4650 resistance playing havoc again.
c)the all time high spurt in NSE Nifty volume on 05/19/2009 rings the same warning as did the all time high volume spurt on 10/05/2007
d)Institutional figures have been showing massive short building in futures and heavy buying of equities. a simple fall of 125 count in nifty would earn the institutions the margin required for those shorts and then all the acquired equities would be up for sell( that is the smart way of pulling the carpet from under your feet)
e)the bad bad rally seen in mid-cap and small caps is the nail in the coffin for the bull-run. P/E ratios worth 30 are available dime-a-dozen with no basic strengthening of economy. End of a bear market is marked by very feeble market participation but we are neither hearing news of broking institutions closing down nor are we seeing people disgusted with stocks. Infact teenage guys are more interested in stocks than in a pair of beautiful legs. Only argument that can be placed against it is there was no bear market and it was just a correction from 6300 to 2250,with 849-6357 being the first wave of eliot. I am ready to buy that theory of Mark Mobious but for that we are heading for atleast 9465 (1.318*(6357-849)+2252, with a non tracing back in the 6350 zone after we again cross it). Mark probaly himself knows the odds against it, and i would really love to venture into the institutional calls he is selling(please no offence there, it was just leg-pulling)
f)the steadily declining new high new low index is confirming the possible sentiment reversal( check the PC ratio of stock options in NSE, for every 5 calls, institution is selling a put. the smart money is asking dumb money to bet in upmove of the market. which camp one would love to be is one's own prerogative)
g)moving away from charts, the fundamental value of reliance, for example being 1650 as of date and people still buying it for 2300, is not at all a healthy sign. maybe we would soon see an indian buffet again selling off everything to pay his investors and
say he is not finding anything undervalued.

Sorry for the long post, but i was trying to point out to my dronacharya that i derived my opinion from the charts and market itself.

Yours ekalavya

wildeazoscar said...

Just few more quips of anticipatory readings( as the bear camps answer to the bull camp's anticipation of seeing the handle being formed, i.e. studying bearish bias in anticipation)
1. Nifty futures gapped up thrice- once near 2650, once near 3061 and once during the election result aftermath. a simple gapdown before the handle formation is far more likely completing island reversal. I am not asking you to buy this--- I am simply pointing out the bias involved if we frame out future actions chart is going to perform.
2.Index futures do run 100% up in eight months (like from 10/27/2008 till date), but if the run is from a three year low, last time we visiting 2250 was in july 2005, all the probable patterns in technical analysis( one can check bullkowski for that) indicate that the low would be broken on the downside.
3.If my 550 target for nifty seems too optimistically bearish, or too pessimistically bullish, I can show the simple counts for arriving there through numerous clues from the chart.

Amirishali said...

*Student* u inspired me though it is Sudarshanji's strategy I read it first time.

Thanks & Regards

Krishna said...

Reference Trading

Reference Trading is the simplest & apparently logical method to track & trade not only stk mkt but any tradable asset.
Logic behind this method is that just choose a "Suitable Price Band" on ur stk or underlying and stay long above the band with SL just below the lower end of the band.
One can start trading at any point of time and for any preferred time span (in case of positional trades).
This technique is time tested & proven and the core logic behind this technique is that if mkt has made ant decisive movement in a specific direction in a given time span then it will bring profits to the trader.
This does not require any technical understanding or charts or complex theorems etc.
Taking an example here-
Suppose a stk "X" is trading at price "P" at a given point of time. What I shall do that I make a price band in my mind like LONG above (P+5) & Short/quit below (P-5)..Now if mkt makes any significant & decisive movement in any direction from this "TOTAL PRICE RANGE BAND" then I shall make simple….no complex TA or theorems..
In fact simple methods work & win..
ORB is just another form of "reference Trading"

A Student for Life, of Life (and of Markets) said...


that was a type. The SL was placed at 4463 (not 4563)

Thanks for pointing it out and sorry for the confusion.

Student for Life

men said...

Mr. Sudarshan, could you consider and comment on the following, the present nifty pe is 20.68 @ 4580, and the next resistance comes at 22.68 corresponding to approx 5022 on the nifty, if that is taken out the next pe is 24.68 and nifty target is then 5465, if ta reflects the past these could also be considered then.

just brooding said...

Nifty 9465 and nifty 550....both with logics presented here in the comments.wonder whether charts predict future or disclose present action?

dp said...

hello sir,
i an regular reader of ur blog
pls solve my one confusion
there is one company in which i am invested. when the result comes they give two types of result
1. consolidated
2. standlone
there is lot of diffrence batween to results like
consolidated E.P.S:- 25 P.S
standlone E.P.S :- 6 E.P.S
if market currently discount the standlone valuation then in future can market also give the valuation on consolidated basis.
pls suggest we analyse.

vvvvv said...

Being a layman, I am scared. What should my target in NIFTY be - 9465 or 550?
Expecting a simple one word(number) answer.
Please, come to our rescue.

amol said...

why u don't write after 4th june??
we r waiting....