Monthly Elliott and Fibonacci Analysis of India’s Nifty July 4

Jul 4, 2009: 12:12 PM CST

Per multiple reader request (thank you to all my followers in India!), I am updating my analysis on India’s “Nifty 50″ Index, beginning this week with the long-term 10-year Monthly Structure.

Let’s take a quick look at a possible large-scale Elliott Wave count and also a Fibonacci Confluence (three price levels) chart on the monthly timeframe – a key turning point may be ahead soon.

The market rallied sharply off the 2003 lows near 1,000 and peaked in January 2008 at a price high of 6,350 – an absolutely impressive rise to be sure.

Look closely and you can see an ‘arc’ rise (not drawn) off these lows as price went ‘parabolic’ in its last few months – a classic warning of a top being formed.

We see the Elliott Wave count (from 1 to 5) as the market rose 600% in value.  We now appear to be in a corrective phase, and perhaps are finishing the “B” (second) wave of a larger corrective move to retrace a larger portion of this price rise.

This count would assume that the final “C” Corrective wave down is on the horizon, which could take price back down to test the 2,500 level yet again in the months and perhaps next year to come.

We have already retraced 61.8% of the move from the 2003 lows to the 2008 highs, so perhaps the corrective phase has run its course – that would be the alternate scenario.

The “alternate” scenario would assume that instead of the 5-wave decline I have labeled as “A,” we instead had a complex corrective move down – perhaps in the order of ABC – X – ABC to end the correction, which places us squarely in Wave 1 now of a “new bull market” and expecting a corrective Wave 2 down (not to the lows – but perhaps to the 3,500 level) to begin.

I think it ‘counts better’ as a correction instead of a new bull market, but we need to be open to this possibility.

Either way, the “Next Likely Swing” appears to be a down one, whether it be the final Wave C or just a corrective Wave 2 – that is where I find Elliott Wave helpful – not in absolute forecasting, but in confluence counting in regards to the “next likely swing.”

Speaking of confluence, let’s take a look at a “Confluence Fibonacci Grid” using three price lows to begin our retracement to the closing high in January 2008.

Two of the 3 grids overlap about the 4,400 level, which you see is exactly where price is located now.

In fact, that is the only major overlapping confluence level we see using these grids on the chart.

This implies that price is at a “critical node” and could be unable to overcome this confluence level to the upside – in other words, it could serve as key resistance.

Last month also formed a “Spinning Top” candle, which is often seen and associated with key turning points in a market.

As a caveat, there’s no guarantee of any absolute prediction into the future, but for now, we have the following:

Possible Wave C (or Wave 2) down about to begin
Price at a critical Fibonacci Confluence Node around 4,400
A Spinning Top candle formed in June on the confluence node

A solid close above 4,800 and especially 5,000 would overrule these bearish omens, but until then, it might pay to be defensive on the long side at these levels.

(Note – for US readers, understanding that the Nifty is at confluence resistance ties into the thesis that the S&P 500 is forming a possible reversal pattern down (Monthly “sell signal” and also Daily Head and Shoulders with momentum/volume divergences) – and adds a layer of confirmation that both markets appear poised for corrections).

Corey Rosenbloom, CMT
Afraid to Trade.com

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Head and Shoulders and Divergences on Daily SP500

Jul 2, 2009: 6:54 PM CST

It’s being broadly circulated around the analysis circles, but there appears to be a distinct Head and Shoulders forming on the daily chart of the S&P 500.  I’m picking up volume and momentum divergences as well, hinting that lower prices are yet to come but let’s take a look at these structures and what they might mean for traders.

With today’s 3% free-fall (Trend Day Down) in the broader stock market, it appears now that the dominant technical pattern is the developing Head and Shoulders on the S&P 500.

It’s not guaranteed, of course, but according to classical technical analysis patterns, we would expect the next move in price to be a ‘magnet trade’ down to test key support about the 885 level in the index.

This support is strongly established as the February highs along with the May lows.  This level also forms the “Neckline” of the expected reversal pattern.

A break (and clean close) below 880 could trigger a flood of short-sell orders (and stop-losses from buyers) which could create a ’self-fulfilling prophecy’ as traders and investors push price lower.

The classic measuring move is the distance from the Head to the Neckline (about 75 points) which is subtracted from the neckline at 885 to give us a target from 800 to 810 for the next level of possible pattern support.

Take a look at Volume, which has been steadily trailing lower as price has creeped its way higher.  That serves as a non-confirmation of higher prices and hints at an impending reversal.

Finally, look at the 3/10 Momentum Oscillator – as price has been inching higher, the 3/10 Oscillator has been making lower highs along with price, and has even set-up the dreaded “Three Push” reversal pattern (a triple negative momentum divergence, which you see if you look closely).

As a caveat, there’s no guarantee price has to break these levels, and one astute reader (Michael) even noted in the comments of the prior post, because the Head and Shoulders pattern is so obvious, it might be ‘faded’ or fail to materialize because so many people are watching it.  No one said trading had to be easy!

Until we see something different, this is the current price structure of the S&P 5oo as we head into the holiday weekend.

Find more information about our new Weekly Inter-market Technical Analysis and the Daily Idealized Trades member service which have just launch at the Premium section of Afraid to Trade.

Corey Rosenbloom, CMT Continue Reading…

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Sell Signal on SP500 Monthly Chart?

Jul 2, 2009: 11:20 AM CST

June’s monthly candle closed with a ‘doji’ at Fibonacci resistance – that’s a bearish development as we start the new month of July.  Let’s take  a look at the S&P 500 monthly chart to see its current structure.

We see the S&P 500 is still below levels from 1998 – in fact, price recently came into the 950 level which was prior support in late 1998 (and for the September spike-down in 2001).

Most importantly, we have come into the 38.2% Fibonacci resistance level of the May 2008 highs to the March 2009 lows – virtually to the point.

In combination with that, we have a bearish doji candle formation at overhead resistance – and as of June 2nd, we have a down-candle.

Don’t put so much emphasis on the two trading days in July as equal to the full months the other candles represent – but it’s telling.

If price continues in the direction it appears to be traveling (down), then we will have a confirmed reversal/retracement down off the 950 highs in mid-June.

The above chart shows a simplified version of the current S&P 500 structure.

For those interested, we are now offering a new weekly report entitled “Weekly Inter-market Technical Analysis” which analyzes each of the Ten-Year Note, S&P 500, Gold, Crude Oil, and the US Dollar Index on a monthly timeframe perspective, beginning with an analysis of the Monthly frame then moving down to the Weekly and Daily frames, noting key areas to watch and possible opportunities ahead.

Find more information about this and the Daily Idealized Trades service – both of which have just launched – at the Premium section of Afraid to Trade.

Corey Rosenbloom, CMT
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Hear Corey’s 5 Interviews at MoneyShow.com

Jul 1, 2009: 3:37 PM CST

During the Los Angeles Traders Expo in early June, I participated in an interview session with Karen Gibbs and the crew from the MoneyShow.com Studio.

These brief, 3-minute segments are now available at the MoneyShow.com website and I wanted to share the collective links to each interview.

1.  Trade From the Big Picture

Karen and I discuss how to use “Broader Perspectives” to weave down the timeframe scale to maximize trading opportunities and minimize risk on the lower timeframes.

2.  An Important Low?

I review the current structure of the S&P 500 and what the technical indicators I use are saying – specifically in regard to the March 2009 lows.

3.  Good Time to Buy Dollar-Denominated Assets Now?

I start by describing inter-market relationships of the dollar and commodities, then move to discuss the longer term trend of the US Dollar Index, Government Spending, and possible Inflationary Pressures ahead.

4.  Conquering Fear and Greed

I discuss some of the basic ‘trading psychology’ guidelines and on how traders can assess their emotions while dealing with greed and fear to boost trading consistency and performance.

5.  Trading With an Edge

In what I believe to be the most important concept in trading that surpasses all trading strategies, Karen and I discuss what constitutes a “Trading Edge” and why it is so important.

Corey Rosenbloom, CMT Continue Reading…

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Hewison Gives Timely SP500 Update in New Video

Jul 1, 2009: 12:22 PM CST

Adam Hewison released on of his most descriptive video updates on the S&P 500 this morning and I wanted to share it with you to keep you in the loop as usual.

In this video – which I honestly deem to be among his best – Adam describes a two-month cycle that is peaking (I’m weak in cycle analysis), a Head and Shoulders reversal pattern possibly forming (including a price target), key Fibonacci support (target) areas beneath price to watch, the importance of the 880 level, the standard MACD Divergence, Trade Triangles, and other chart aspects – all in a free seven-minute video entitled simply “S&P 500 Update July 1st.

Adam and I share the roughly the same analysis, only he presents it in a popular video format.

Here’s how Adam describes the video:

“Today I’m going to take another look at the S&P 500 Index. It appears that some of the rose coloring on traders’ glasses is beginning to wear thin. Many more traders now perceive this as a two way trading market as opposed to a one way street we witnessed in March and April.

I am going to be analyzing a daily S&P index chart and making some observations that I think potentially could work out if certain elements fall into place.

At the present time our “Trade Triangle” technology is indicating a neutral stance in this market. With the -55 reading our “Trade Triangles” are indicating a trading range which could possibly be an early sign of a reversal.”

As always, Market Club members receive these videos as they are released (without the delay of affiliates) as well as access to education, scans, and of course their “Trade Triangle” signals (which are a combination of technical indicators that mirror a trend following strategy).

My appreciation to Adam and staff for producing these timely updates and allowing me to share them freely with you.

Corey Rosenbloom, CMT

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