Nifty Head And Shoulders Confirmed

The Nifty, which was just 57 points away from going through the trendline on Thursday, chose to remain in a narrow range below the trendline before showing a decisive surge in the last hour of the day. This surge took it to a high of 4968 in the last 30 minutes before it closed the candle at 4950.

The chart shown above is just a replica of the chart shown in the previous newsletter (with data for the last day added in and with a few extra lines). As can be clearly seen from the chart, the Nifty has managed to make a perfect head and shoulders pattern and has also managed to go through its neckline. You can see a dashed brown line from the neckline to the bottom of the head (marked by the brown arrow). This is the line that gives us the target. We get the target by copying this line to the place where the Nifty actually broke the neckline (marked by another brown arrow). This gives us a target of somewhere close to 5350 on the Nifty. There may be some zones of resistances inbetween which have again been marked by horizontal dashed brown lines.

Under ideal circumstances, this forming of the head and shoulders pattern and its consequent confirmation (of breaking through the neckline) should take the Nifty to its theoretical target of 5350. However, there are a number of occasions when the patterns fail too. This failure could be in terms of the pattern not getting confirmed, the pattern giving a false confirmation or a failure to reach the price target. For example, the bearish H&S pattern in the RSI formed a few days ago turned out to be a failure. But in this case, we can see that the pattern has been confirmed. We would consider this to be a false confirmation if the Nifty were to go below 4850 and we would consider it a failure if it fails to reach at least 5300.

Dr. Reddy’s Labs, on its 30 minutes chart, has made a bullish head and shoulders pattern and seems to have multiple shoulders. While it is completely possible to have multiple shoulders in a head and shoulders pattern, yet it is not possible to have more than one head because then it would become a double bottom/top or a triple bottom/top instead of remaining a head and shoulders pattern. It currently seems to be going through a pullback. Consider buying it between 580 and 582 or above 594, whichever comes earlier. A target of 635 is possible. A stop loss of 563 is advised.

Infosys also seems to have made a bullish head and shoulders pattern on its 30 minutes chart. It is still unconfirmed but if the price were to go above its neckline at 1550 then it would be confirmed and would give us a target of 1735. Consider buying above 1550 for a stop loss of 1420. The stop is a little wide but we cannot change what the charts say. We either follow them or we don’t.

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