Trade Set-up for 24.2.2012

First of all a look at daily charts:

The gap at 5460 acted as support today. May not hold tomorrow --Nifty closing below 5 DMA for second consecutive day tells us that it is going to test 20DMA(currently at 5368) definitely so positional shorts can very easily hold on till that point. .Thus for tomorrow the safest trade would be to short at rise with a stop-loss at 5629 and target 20DMA.
Now the EW part.
One Impulse(a 5 wave form) has played out from 5629 to 5461=168 points.
Corrective to it,so far has done ,5461-5537=76 (45%)
Now percentage-wise this is enough for the next Impulse to start(from 5537 downwards) for a minimum 104 points(taking us to 5433) or ideal 168 points(taking us to 5369).

Only one thing to confirm---form of this Corrective(from 5461-5537).And that is where subjectivity steps in.
If this 5461-5537 was a 3 wave form then the probability of fresh Impulse to the down to have started are very high(though not 100% as even a 3 wave form may be only a part of 3*3*5 flat).
And if this 5461-5537 was a 5 wave form then an upmove should start from where it is at present i.e.5473 to take it past 5537(a zig-zag where a=5461-5537=76(5w);b=5537-5473 and c upwards by 76=5549).This zig-zag may complete the Corrective(as a 3 wave form) to Impulse 5629-5461 and fresh Impulse downwards would start.

So lets look at the form that this 5461-5537 has taken:

And let me put up the chart and both the probabilities so as to choose one:

As such,the 3 wave form looks perfect.But a look inside C shows that it does not fulfill "properly" the criterion of a 5 wave form(none of  its 5 sub-waves is extended).

So now lets have a look at the 5 wave form:

Here also the same issue. Although the 5 wave form looks perfect,inside 5th wave,the sub-waves have same problem as in C earlier(none of its 5 subwaves is extended).

So that leaves the field open----and both the probabilities also.

Now going by my thumb-rule that  when the Impulse took one & half trading session, Corrective should take more time ---I prefer to go with the 5 wave option for the up-move 5461-5537.

Now lets see the down-move so far i.e.5537-5473--- is it a 3 wave or 5 wave?

And that makes my job much easier.
All important point is now 5470.3

If we donot tick below 5470.3,we would go up to do a 5*3*5 Corrective to Impulse(=5629-5461) of which one 5 was 5461-5537;3 was 5537-5473 and last 5(upwards)remains to be played.

And if we tick below 5470.3 then in all likelihood we would slide to 5368(20DMA as well as the ideal target for a zig-zag to the down).

Conclusion: 
Long above 5470.3 for targets above 5537(upto 5549 ideally) and then Short near 5549.
Short at all rises if we open below 5470.3 
Target 5368(20DMA)

Raghu

PS:Aaaaaaaaaah,a long post but I have tried to delve deep into EW.May not be able to delve into so much of details always---so learn as fast as possible to relieve me and take over from me.