Capture Trends
NIFTY displays fatigue at resistance PDF Print E-mail
Written by George Albert   

(As published in India Infoline)
May 13, 2010: A person walking uphill has a lot of energy at the start of the journey. Higher up on the hill fatigue sets in and the person is prone to trip on any small obstacle.

Given the fatigue one can fall pretty hard. On recovery it takes longer to move up given the injury from the fall adding to the fatigue. After a few falls the person either gives up the desire to move uphill or takes a long rest, recuperates and begins the journey up again. The NIFTY right now looks pretty tired.

The fatigue and fall is described as an impulsion and correction sequence in technical speak. When the impulsion is in the reverse direction of the trend, it's a warning that the trend is weakening. This is reinforced when the correction to the impulsion is slower. Let us look at the NIFTY chart to get a clearer view of the impulsion and correction sequence. 

Notice that the three thick black lines on the chart show the downward implusions, which is in the reverse direction of NIFTY's up trend. Also notice that the index is taking an increasingly longer time to correct the newer downward impulses.  This is one clear sign that the NIFTY is tired  and may be due for a trend reversal. The second factor is that the impulsion is occurring near resistance as marked by the blue lines. This increases the possibility of a reversal. The blue lines show previous turning points of the market in 2008.

Now lets us look at the 30-week moving average shown by the brown sloping line. The moving average is turning flat indicating that the uptrend is over and that the NIFTY may either move flat or fall. A sign of weakness is that the NIFTY has already closed by the 30-week moving average twice, once last week and earlier in 2010. Long term investors treat prices trading below the 30-week moving average, with the average sloping down as confirmation of a bear market. NIFTY is not there yet.

Finally an analysis of the directional movement indicator at the bottom of the chart. The black line is sloping down which shows that the trend which was bullish has weakened. Also the negative directional indicator shown in red has crossed above the positive directional indicator shown in green. This shows that the bearish forces are stronger than the bullish. 

For the bull to prove its strength, the NIFTY has to close above 5350 first and then break above 5555. Till the bull has proven itself, it's not a good time to go long. 

Chart Analysis

 NIFTY impulses