Hello friends,
Another thread on price, volume and time analysis.
I am posting here a daily chart of Nifty (Index not futures) since January 2008 up to 14/01/2009.
I would like you to note these points and if you notice anything more, kindly feel free to add in this thread. I shall be glad to receive more information and let this thread be a short learning experience to all.
One of the intention of posting this chart and thread is to keep it as a ready reference for future as to how a bear market progressed from stage to stage.
In the chart I have marked three distinct down swings. You will notice three arrows (in all) pointing each of these down swings.
When each of the first two down swing ended, obviously price was supported. The first horizontal line is drawn at the earlier support of the reaction in the earlier upswing. You will not see this reaction low in the chart posted here. But you can verify it from your chart. It may be noted that price rallied back to earlier support level after the end of both these first two down swings. Remember often rehearsed phrase support turning in to resistance? That is exactly what happened in first two down swings.
I have marked the reaction rally after each of these three down swings in round shape in the chart. What happened during each of these reaction phases is development of a nice trading range, which is indicated by horizontal lines in the chart.
When first reaction rally ended, down swing no. 2 began and when the second reaction rally ended downswing no. 3 ensued. You can notice this in the chart very clearly.
Now the most disturbing part (for the perennial bulls). Look at what appears to be reaction rally no. 3, which I have marked in round shape and put a question mark in the chart. Have you noticed on disturbing fact here? This last reaction rally did not reach the earlier support level. Let alone reaching it, it fell far far short of it. Of course, it is quite premature right now to say whether down swing no. 4 has commenced or not. But if down swing no. 4 has indeed commenced (I am having strong suspicion on the last swing reversal candle – Look at its range and look at its volume. Highest in the entire chart. That candle happened on Sh** M scam announcement day. Highest volume on that candle, is it not a disturbing fact for bulls?
Now look at the volume and compare them with one another in each down swings and with each trading ranges and in each reaction. Clearly reaction no. 3 and its consequential trading range has highest volume in the entire chart.
Now combine these facts with one another. Price is unable to rally to its prior support level (which we are expecting it to be a resistance level) in reaction rally no. 3. This happens with massive volume. Add the fact that price falls far short of earlier support level in reaction rally no. 3. What does it indicate? Supply swamping demand.
What is that one can reasonably expect at the end of a massive bear run? First a selling climax and thereafter a low volume quiet trading range. That is the least. But what has happened now? Is it that what we are seeing. It is disturbing to note that sellers are selling and buyer are unable to absorb it.
One of the fundamental principle in the market is that it is foolish to attempt to markup the prices when there is ample supply. Price can be marked up only when
a. sufficient quantity has been already purchased
b. there are no more sellers (i.e. sellers with sufficient quantity to swamp demand) and
c. when both the above facts are confirmed.
If all these facts are not confirmed, any attempt to markup the price will be a hazardous stunt, which no professional trader will attempt to do.
So for perennial bulls I have a question, is it not illegal for the time being to expect a rally firstly beyond recent reaction no. 3 high and on a medium term basis anywhere above the last support level just above 3600?
One last caveat. I am assuming that down leg no. 4 has begun as described above. Instead if this one turns out to be another movement within a trading range affair, then we will have to reassess the situation with the available facts at that point of time. As you know we are analyzing the charts in present conditions. Opinions have to change as and when more information is added to the chart. It is foolish to stick same earlier opinion when facts point otherwise.
All you opinions, comments are welcome.
Another thread on price, volume and time analysis.
I am posting here a daily chart of Nifty (Index not futures) since January 2008 up to 14/01/2009.
I would like you to note these points and if you notice anything more, kindly feel free to add in this thread. I shall be glad to receive more information and let this thread be a short learning experience to all.
One of the intention of posting this chart and thread is to keep it as a ready reference for future as to how a bear market progressed from stage to stage.
In the chart I have marked three distinct down swings. You will notice three arrows (in all) pointing each of these down swings.
When each of the first two down swing ended, obviously price was supported. The first horizontal line is drawn at the earlier support of the reaction in the earlier upswing. You will not see this reaction low in the chart posted here. But you can verify it from your chart. It may be noted that price rallied back to earlier support level after the end of both these first two down swings. Remember often rehearsed phrase support turning in to resistance? That is exactly what happened in first two down swings.
I have marked the reaction rally after each of these three down swings in round shape in the chart. What happened during each of these reaction phases is development of a nice trading range, which is indicated by horizontal lines in the chart.
When first reaction rally ended, down swing no. 2 began and when the second reaction rally ended downswing no. 3 ensued. You can notice this in the chart very clearly.
Now the most disturbing part (for the perennial bulls). Look at what appears to be reaction rally no. 3, which I have marked in round shape and put a question mark in the chart. Have you noticed on disturbing fact here? This last reaction rally did not reach the earlier support level. Let alone reaching it, it fell far far short of it. Of course, it is quite premature right now to say whether down swing no. 4 has commenced or not. But if down swing no. 4 has indeed commenced (I am having strong suspicion on the last swing reversal candle – Look at its range and look at its volume. Highest in the entire chart. That candle happened on Sh** M scam announcement day. Highest volume on that candle, is it not a disturbing fact for bulls?
Now look at the volume and compare them with one another in each down swings and with each trading ranges and in each reaction. Clearly reaction no. 3 and its consequential trading range has highest volume in the entire chart.
Now combine these facts with one another. Price is unable to rally to its prior support level (which we are expecting it to be a resistance level) in reaction rally no. 3. This happens with massive volume. Add the fact that price falls far short of earlier support level in reaction rally no. 3. What does it indicate? Supply swamping demand.
What is that one can reasonably expect at the end of a massive bear run? First a selling climax and thereafter a low volume quiet trading range. That is the least. But what has happened now? Is it that what we are seeing. It is disturbing to note that sellers are selling and buyer are unable to absorb it.
One of the fundamental principle in the market is that it is foolish to attempt to markup the prices when there is ample supply. Price can be marked up only when
a. sufficient quantity has been already purchased
b. there are no more sellers (i.e. sellers with sufficient quantity to swamp demand) and
c. when both the above facts are confirmed.
If all these facts are not confirmed, any attempt to markup the price will be a hazardous stunt, which no professional trader will attempt to do.
So for perennial bulls I have a question, is it not illegal for the time being to expect a rally firstly beyond recent reaction no. 3 high and on a medium term basis anywhere above the last support level just above 3600?
One last caveat. I am assuming that down leg no. 4 has begun as described above. Instead if this one turns out to be another movement within a trading range affair, then we will have to reassess the situation with the available facts at that point of time. As you know we are analyzing the charts in present conditions. Opinions have to change as and when more information is added to the chart. It is foolish to stick same earlier opinion when facts point otherwise.
All you opinions, comments are welcome.