Back in March we had carried an update on the Nifty spot for the short to medium term based on the logic of market profile.
You can catch a glimpse of that post from March 5, here.
In that post we had strongly argued about the importance of the 5550 level from a medium term perspective, making a point that if we closed above 5550 we should make it to 5900 and maybe more.
Here is an updated chart post that commentary on March 5.
This is a weekly bar chart of the Nifty spot. The rectangle in blue is the development of the profile from that date in march. We see :
a) The market stalling the upmove at the developing Point of control ( maroon line) at 5900.
b) One time frame control of the sellers from the 5900 level on the weekly time frame
c) First signs of excess this week from lower levels, which were the same as the signals picked up from 5177 back in Feb
d) Another weekly close above the 5550 level will confirm this recent excess and put the market back on the road to 5900.
Now let’s turn out attention to the daily chart.
The chart above is a daily chart of the Nifty spot, having the daily point of control ( not visited) and parallel trend lines :
a) The upmove of June to November of last year has been replaced by two parallel trend lines of the same magnitude, extending down in sync with the older move.The extensions of the duplicated lines are now at 5633 and 5348
b) 5919 represents the end of the first lower parallel line from where it can be argued that momentum shifted lower. 5919 was revisited during the latest rise in March-April.
c) 5633 is the first lower extension also near the top of the brackets in feb-march as well as the one developing now.
d) 5348 is the lower end of the bracket and a move below this in march got supported by the daily POC below, creating excess as in the first chart above.
Should the daily violate 5348 now strongly on closing basis, we should see a bigger slide ahead.
The market is currently resting near the 5484 POC fairly priced at the daily.
After a big, double distribution ( DD) day yesterday, today’s auction was disappointing from the point of view of sellers as the market did not follow though on the lower distribution and instead chose to build volume in the single prints of yesterday.
We like to think about the DD as two separate auctions and wait for follow through on emerging behavior.
It was noticeable that the market did not successfully auction in the upper distribution of yesterday.We also have the Ray Barros type failed auction today, which we last spoke about in this blog here
As we head into expiry, the deck is been stacked against the buyers for this series at least.
The market will now have to trade strongly above the failed auction point of 5417 to go higher, then take out the prior pull back low of 5446 before meeting resistance at the HVN of 5478 which was Friday’s close and gap for this week.
Down lower support is at 5340 and near 5312.
Earlier today, we identified 5360 and 5427 NF as the limits for the writers at 5400. With over 140 Lakhs in Open Interest at 5400 May, the volume there cannot be ignored for the remaining two days.
If you are regular followers of RM’s Market Breadth postings, you may have noticed the addition of two new tabs above the McClellan oscillator, one for the Volatility denoted by VIX and the other for declining volumes from the declining issues of the exchange.
At Vtrender, we are great believers in the MCClellan Readings with levels under zero pointing to a seller dominated market and above zero pointing to a market driven by buyers. Besides levels of -80 and below and + 80 and above have been great reversal points and generally signal a pause in the downtrend/ uptrend if not the beginning of a swing term reversal. There are also divergences, which make the art of reading the market through the McClellan simpler.
The addition of Vix and Declining volumes is to get more evidence of a market about to turn.As a rule, the Vix and the market tend to follow opposite paths, but even die-hard Vix fans will accept that the market does not always go opposite to what the Vix does every day.The reason is that many times the declining volumes of the index overrides, the action of the Vix and it is perilous to make an assumption on the index only on the action of the Vix.
Check this chart out, courtesy RM :
The charts is of the Nifty spot with declining volumes (as a continuous line in red) in the pane below, followed by the vix in blue below that and finally the McClellan oscillator in green in the last pane.
The MCClellan oscillator is at -41 as of the close yesterday, firmly in negative territory but sporting a minor positive divergence to price.
I have marked 4 points in the chart : A, B, C, D in yellow boxes.
Whilst looking at these points, lets’ remember that the VIX and declining volumes should move opposite to price. If price is decreasing and declining volumes are increasing, then the down move will accelerate. On the other hand if price is increasing and declining volumes are also increasing, then the up move will in all probability fail.
Point A : Spot near 5900. Note the position of declining volumes and Vix also marked A
Point B : The market has fallen from 5700 to 5600. The vix also falls, but declining volumes are going up.The declining volumes rectify the anomaly in the Vix here.
Point C : A up-down swing of 100 points is captured through declining volumes, whereas the Vix is flat to negative
Point D :The up move of friday seems right, as vix is down, declining volumes are down and price is up.
As a rule, read Vix along with declining volumes.
The Market Breadth charts posted By RM continue to be fantastic indicators of broader sentiment in the market.