Saturday, March 24, 2012

NIFTY performance after 5 straight / consecutive down weeks

NIFTY performance after 5 straight / consecutive down weeks.
Thanks to https://twitter.com/#!/korareddy for the work. I discovered him on Twitter recently.Highly suggest following him,his blog. I also plan to buy his book  - High Profit Trading Patterns.
So after a +23%  rally in NIFTY India / Sensex from low of 4544 on 20 Dec 2011 to high of 5607 made on 21 Feb 2012., we have seen a ~(-7%) correction to 5228.Last friday, NIFTY closed at 5278 just below 200 days Exponential EMA / DMA of 5385.
Nifty has closed for 5th straight / consecutive week,after 7th straight week of gains.So now what happens next week ? Details below.
As mentioned earlier ,historical analysis / study has been done by @korareddy .Only 20 such instances since year 2000. His findings, on average, after 5 straight down weeks, next week average gain is 55% of the time with avg. 1 week gain of +0.97% / Median gain of + 0.6%.
His findings re-posted below. His detailed blog post here

My plan was to see these results by adding a filter -  to see when NIFTY is above / below a long term trend i.e 200 DMA or 40 Week MA. (I have taken exponential).
Summary of my findings -
  • Most of the 20 such instances (85% = 17 / 20) in the past of 5 straight down weeks were seen in bear market when NIFTY was below 200 days EMA
  • Most of the big gains next week later have been seen whenever the past 5 weeks had seen sharp double digit falls. Again, typical of bear market rallies. (This time in Mar 2012, 5 week loss has been (-5%) to (-7%).
  • So conclusion that can be drawn is support at 200 days EMA is very crucial (5385) for gains to be seen next week. (a mini H&S Head & Shoulders pattern is also seen in 3 month charts with neckline support at 5220, if this fails then target of 4980 or (-7%) fall from here. )
  • Bearish view - NIFTY is at 5378 , already below 200 day EMA of 5385. 200 simple DMA is 5165. Taking the bearish view with median /avg. drop of 5% -5.4%, we get a target of 5050 to 5100.
Summary below in same above table format (click to zoom). Rows with filter of only when NIFTY is above 200 DMA is highlighted in yellow. ( 3 such cases)
 NIFTY chart at the beginning of this post above, with 40 Week MA (exponential)

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