Nifty:EOD 14.11.2011

My main objective of writing this blog is to try and find the direction of Mkt on short term basis-- mainly for the day ahead . And the tool at my disposal is EW. At times my attempts give very good results but failures are also there. And so far, despite mkt remaining in very small range and giving daily gap-ups/downs, results have been satisfactory but definitely not exemplary. Failures are primarily because of my inability to identify the wave form correctly. But my endeavour to project the mkt direction for intra-day play continues---- (and I beg forgiveness from cynics who believe that EW can not be used to project mkt direction for day-to-day basis).

My latest failure was to predict the start of SW3 from 5326 downwards. Lets examine the charts now(with the benefit of hindsight):

The part in shade i.e. SW2 has been shown below:

Sub wave B of this SW2 was taken by me as a 5 wave form and counted as part of SW1.

Even now, it is only with the benefit of hindsight that I am able to "see" this subwave as a 3 wave form and SW2 as a Flat. And it is on this ability ( or failure) of finding the correct form of today's wave that our projection for tomorrow's direction rests. And it has to be accepted as it is---

Now lets come to today's wave-play:

Continuing with today morning's wave-count:

SW1=5400-52o2=198

SW2=5202-5326=124

SW3=5326-5140*=186

5326-5257=69

5257-5317=60

5317-5142=175

5142-5228(5142-5188-5160-5228)=86

5228-5140=88

An ideal 3 wave form seems to have played out so far, so what next?

As I have been saying all along, this particular down move from 5400-5140* (so far) is going to be our guiding light for our higher degree counts as well. If it fans out as a 3 wave then we shall turn back and start moving up. But if it plays out as a 5 wave then this SW3 has to continue to chalk out a minimum length of 320 points[1.62*198(=SW1)].

But even to play out as a 5 wave form, this SW3 has to first retrace its (i)=5326-5140* by 50% or more.

So tomorrow's direction should be UP and target-1 is 5235 .

However,keeping in mind the Probability2: Of this (i) having already played out as 5326-5142 and (ii)=5142-5228 and (iii) in play from 5228 downwards with a target of 4900, longs must keep a tight SL @ 5125.

The two probabilities are mentioned in the charts below:

And here is how the EOD charts look:

This closing below the crucial trendline for two consecutive days and the bearish engulfing candle is adding to the negative bias and fueling the Probabilty No.2

Raghu