Head And Shoulders Cancelled

The Nifty opened on a bearish note today and continued to slide down throughout the day to close at its weakest point at 4705 losing more than 200 points, which works out to a little more than 4%. This was not what we expected from the markets after a bullish head and shoulders was confirmed on the 30 minutes chart.

What do the markets now say? One thing is for sure, the head and shoulders made on the 30 minutes chart has now been cancelled and with that the Nifty has moved into a short term downtrend. It has given a signal to all short term traders to exit long positions and wait for a further dip to re-enter the markets. The investors are already waiting on the sidelines to enter at lower levels. Their stop is much wider and is close to 4500. But, at what point should we make a re-entry? The answer to that is, only when the market tells us to. And that will happen when the short term trend changes to up again, which means a move above 4970. We may get stopped out again like this time but that is the only wise thing to do.

Let us look at the possibilities now. Seen above is the 60 minutes chart of the Nifty. We have two lines here today. One is the solid blue line and the other is the dashed brown line. The dashed brown line is where we had drawn the head and shoulders pattern yesterday, which got confirmed yesterday and cancelled today. There is a possibility that our interpretation was wrong. Maybe the market did not consider the small ‘s’ a shoulder at all and considered it to be a part of the head only. Maybe the shoulder is being formed now, and that too of a larger and a straighter head and shoulder pattern. If this is indeed the second shoulder then we should have support between 4600 and 4650. It is also possible that it may not be a shoulder at all and is actually a new decline. In that case, it could go and find support near 4480 or may continue southwards beyond that too.

We should just wait and see what the market wants to do. Wisdom lies in following the market and taking positions accordingly. There is no point trying to catch a falling knife or try to jump in a running train.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

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