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NIFTY FUTURE

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Fibonacci averages have long been considered a strong indicator for various trend identification , trend reversal etc. However the averages which are widely used are 5,13,55,200 etc.

I have tried the following two Fibonacci averages to identify LONGER TERM TRENDS in the market(NIFTY). These are 89 DEMA and 233 DEMA.

Fibonacci series includes: 5,8,13,21,34,55,89,144,233,377…etc

Specifications:

If you look at the chart below:

  • The red line is the 89 DEMA.
  • The green line is the 233 DEMA.
  • BEARISH CROSSOVER = IF 89 DEMA crosses 233 DEMA on the downside.
  • BULLISH CROSSOVER = IF 89 DEMA crosses 233 DEMA on the upside.

Historically:

Whenever the intersection of the red line and green line has occurred on the daily charts of Nifty the trend for the markets have reversed.

Point a: BEARISH CROSSOVER: This happened at the start of the bear market of 2000. The prices were in significant downtrend after that period, as we can observe from the chart.

Point b: BULLISH CROSSOVER: This marked the beginning of the strong bull run of 2003. Even the sharp corrections (lower circuit) in the markets could not change the downtrend.

Point c: BEARISH CROSSOVER: This marked the end of the bull run from 2003-2008.

Point d: BULLISH CROSSOVER: This was the start of the sharp rally from 2009 March lows, wherein Nifty came close to breaking the all time highs.

Currently:

The moving averages are in a very close distance of breaking the sharp rally. The difference between the two averages is just 85 points.

If the crossover happens on the downside, I think there is a definite case of a movement of atleast 10-15% down on Nifty from that level.

However for Nifty to sustain the strong rally, we need to have a swift and high price movement on the upside very soon, only then we can change the falling direction of the averages.

These are potent signals for our market, if it gives a bearish crossover, a retest of 5250 and below can be a likely case.

If the averages manage to turn then we are in for a retest of 6000+ levels again or higher.

Just to put the facts correctly: Such crossovers have happened 15 TIMES since the year 1996. And it has given a hit ratio of 100%. So this is definitely something to watch out for.

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Written by Kunal Bothra

March 29, 2011 at 12:31 pm

Posted in Market Update

Tagged with , , , ,

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