Nifty PE crosses 24|A statistically informed entry-exit model!

I was just looking at the daily charts of the nifty index. It is undergoing a sharp correction and now the question on everyone’s mind is where to look for support?

The whole move from the low of 4786 on 25 Oct was a very sharp rally which went all the way up to a high of 6338 on 5 Nov and has been correcting since then. The rally helped the index break out of a parallel upward sloping channel and achieved the channel breakout targets. Now the tops of the channel make a trendline which offers support in the region of 5750. Again the whole rally from the oct low to the recent high will be retraced around 38.2% (which is an important fibonacci retracement level) at the level of 5750 or so. So first support which can come would be around 5750.

If this does not offer support then next support for the rally can come at around 50% retracement level at around 5560 levels. The 200 day exponential moving average which has offered good support earlier on severe falls is around 5510 currently.

Below this around 5400 is the 61.8% retracement level to the above rally which is again a support point.

Another scenario we might have is we could rally from the 5750 or higher support zone and form a lower top below 6388 only to fall again and test the level of 5500-5550 or so in what is called an a-b-c correction where the current fall can be an a wave, the rise which I mention could be a “b” wave followed by a c wave.

Lets see how the scenario unfolds. Anybody with views invited because nobody knows where markets go but it could be interesting to test the theories put forward by various technical and fundamental experts.

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