Herein I share my observation on the Price action of Nifty.
In technical analysis studies, one of the basic assumptions is: History Repeats Itself. Human emotions and behaviors remain the same over years and so as its impact on the market. Thus it certainly makes sense to keep a check on market movement of the past and try to find out likely outcome in the future.
I have observed the typical behavior of the Nifty since its inception. Herein I try to share the same with all. No indicators or patterns are applied. (Though, they can give even better confirmation). Analysis is just based on the Fibonacci tool. Fibonacci series has derived many ratios, 61.8% being one of them. It has special importance and is considered as the Golden ratio.
In 1997, The Nifty started taking a hit from the top. The entire correction was of 40% from the top. But after the first swing low, the Nifty bounced till 50% of the swing before falling further.
The year 2000 witnessed the IT bubble burst and global financial markets crashed again. Nifty corrected almost 55% from the top. The entire fall was with multiple lower tops and lower bottoms. What we can see is the first fall from the top retraced by almost 50 to 61.8%. The Golden ratio was in place multiple times in the entire fall on multiple swings. I have tried highlighting the first swing.
After enjoying the honeymoon phase of financial markets for multiple years across the world, we faced the major financial crisis in 2008. The nifty took a hit of almost 65% from the top. But wonderful to see that the first swing low witnessed retracement of 50-61.8% itself. (I have highlighted exact retracement of 50%, but can consider the first spike low and retracement of that till 61.8%)
As the 2008 correction was a mayhem, let's have a look at little more into the same. In the first chart, it is clearly highlighted that after the first swing low, the Nifty bounced and halted at Fibonacci resistance of 61.8%. From that zone, the new fall began and that made a new bottom for the Nifty in the ongoing correction. The above chart highlights that when the retracement of that last swing was in place, it ALSO halted at Fibonacci retracement of 50%-61.8% of that fall, before falling further.
After reclaiming the previous zone of 2008 during 2010, Nifty entered in correction mode again. Though this seemed to be the combination of the price and the time correction. Nifty came down by approx 30% from the top. In this entire fall, again there were multiple lower tops and lower bottoms. I have tried highlighting 3 swings and in all swings, Nifty retraced the previous fall by 61.8% before falling further.
Nifty saluted the victory Narendra Modiji by delivering returns of more than 50% in a very short span of time. But 2015 witnessed logical correction. Nifty came down from the top by 25% and again, multiple swings were seen during the entire fall. The first swing low AGAIN witnessed 61.8% retracement of the swing before falling further.
Coming to the present situation, 2020 turned out to be the year of pain. Markets across the world saw healthy sell-off due to a pandemic situation. Nifty corrected sharply from the top of 12400 to almost 7500, almost 40% from the top. Sharp rebounding was seen in the last couple of months too, where Nifty reclaimed 10800 zone.
To understand the supply zone based on the Fibonacci tool, reverse retracement is applied from the top of 12400 to the bottom of 7500. 61.8% resistance is seen near 10700 zone. As we look at the weekly charts, the last candle is an ongoing candle.
Putting it all together:
Since Nifty's inception, all major corrections had multiple swings as part of ongoing corrections. There were multiple major Lower tops and lower bottoms too. Sharp reversals were also registered. Most of the reversals were 61.8% of the previous rally. Such healthy bounces take most market participants by surprise and trap decently in the major correction. One, as the market participant, must stay alert on such zones and shouldn't get trapped, if the fall emerges as the part of the major correction.
Cheers,
Kunal
Disclosure:
Kindly note that this sharing is only for educational purpose. It is safe to assume that my personal position, my fund's position, and my client's, as well as relative's position, maybe open in the counter. Kindly prefer to take the advice of your financial advisor before initiating any position. Prefer to keep the risk-reward ratio in mind based on personal temperament, risk appetite, and financial background.
