Nifty - Consolidation Breakout
Nifty - 50, as being branded now by NSE, was in a sort of consolidation since the beginning of the month. In the month of April, Nifty hit the high of 7992 in cash, on 28th April, 2016. The day Nifty hit this high gave feeling of the entering in the bull market by crossing the strong resistance of 8000 on the daily charts which didn't happened. We all know that Nifty has to break the level of 8000 in order to enter in a fresh bull market which may last for a year or two.
Monthly charts of the index also indicates that the counter is shifting its wings towards long term bull run. On monthly charts, Nifty shows the breaking of downtrend channel in the month of March. March closing was far above the high of February 2016. Nifty closed at 6987 after hitting high of 7600 in the month of February. And in March, it opens at 7038 and closed above the high of previous month, that at 7738. It continues in the month of April where it opened at 7718 and closed at 7849 after hitting high of 7992. Now, we are in the month of May and today are the expiry of the month. We have, till date, witnessed the stiff consolidation of the index throughout the month. The index move just like a roller coaster ride. The disciplined traders might have enjoyed fruits of this zigzag kind of movement.
Now, what is the significance of righting this blog today? Why I said that consolidation breakout? Why it is so important?
The Answer of all the question lies in the daily candle of yesterday, the day before monthly F&O Expiry of May 2016.
Nifty opens at 7811 on Wednesday - 25th May 2016. Gap up was almost 63 points from previous day's close. I am talking about daily candle now. Throughout the day, Nifty shows enormous buying pressure and the index never let bears take command for even a moment throughout the day. Such strong movement comes not too often in the index. Nifty hit high of 7941.2 and closed at 7934.9, just below 3 point of high. The low hit was also mere 3 points from the open of the day. The whole day was dedicated to the bulls.
This strong bullish candle came after a weak bullish harami pattern formation of the daily chart on the previous day and the gap up opening has confirmed the success of the pattern though bullish harami pattern was formed with low volume. The days candle closed above the previous highest monthly close of 7900 and it also break the previous monthly high of 7940.1 of 17th May. The entire month, index plays below the range of 7900 and above the 7730 broadly. But the daily candle formed on the chart on Wednesday 25th May, 2016 also formed a flag pattern on the chart with good amount of volume. Some analysts may not convince with this flag pattern as it has not formed the consolidation began since April 21. But, my point is that after hitting high of 7991 in April, the index also hit the low of 7678 in the beginning of the month of May and again reverts from that point and enters the range of 7900 to 7730. This was also a stiff consolidation phase where index tried couple of time to sustain above 7900 but failed. This resistance of 7900 has been broken with significant pace yesterday and even today, while writing this blog, the index has opened gap up on consecutive second day and struggling to stay above the previous day high of 7941. If Nifty survives above the 7950 level and if it breaks the level of 8000 in near future, the index can enter in the long term bull run.
So let’s wait for index break the level of 8000 and sustain above it.
Happy Trading...Trend is Friend
- Anand Singh Gaur
- Sunil Kothari