An experiment.

I thought of sharing an idea that I got yesterday night - it is about finding the probable target for this ongoing "Sucker Rally". I am not worried about the results as it is just an experiment. 

We use Fibonacci retracements to find the support levels for price, after the market has had a rally. I thought why shouldn't I use the same for finding the target for an ongoing rally. The basis for this is very simple, "Price stops/consolidates at support levels, when in a downtrend". Similarly, "Price also stops/consolidates at resistance levels, when in an uptrend". So based on this fact, if we consider the last weeks consolidation as a 23% retracement from the top, we would have the Nifty top at 6450 [ish], BankNifty at 13300-13500[ish]. I believe its logical to provide a range rather than a fixed target. 

Following are the charts:

BankNifty:

Nifty:

Another interesting aspect I thought of sharing - Using the Elliot wave principle, I believe we are in the last phase of the rally for this intermediate uptrend, and a correction is imminent. Look at the "black zig-zag lines in the chart". 

Will the target be achieved?

1. FIIs are buying relentlessly. I have never seen such momentum in the last 1.75 years [since I started tracking the markets.].

2. Nifty should reach the target of 300 points in the next 2 weeks, if there are no major surprises in the world economy. 

3. The breakout on last Friday, has taken most of the indicators to deep overbought region - a bubble. 

4. Dow Jones, is very likely to hit 10,900 this week and continue to hit 11,250 in the next 2 weeks, before going for a correction. 

Why the target might not be achieved?

1. Nifty has to cross it's all time high of 6357 before reaching this target. A previous high is always a resistance. On the contrary, Nifty did not face any resistance at 5700/5900/6010/6170, so why at 6357 - this is a momentum rally. 

What might happen in October?

I expect Nifty to have a correction of 600-700 points from the highs - If you see the charts above, after "4" there is no price consolidations and hence no support levels [a free fall zone?]. I am assuming this might start just before the Coal India IPO. Correct relentlessly for 2/3 weeks and by Diwali, start the rally again, mimicking the Dow Jones. I will review the situation again next week, whether all the above predictions would still be valid. 

What should Investors do?

Investors should consider a time frame of few years. Nifty in all likelyhood will be much higher in the next 2/3 years. And hence stay away from these bubbles/sucker rallies and enter only after a correction has completed and the uptrend has been resumed. Try to get a Demat account :-) atleast 2 weeks ahead of Diwali and be prepared to invest. 

What should traders do?

Based on your strategy enter long/short, with a stoploss and try to be in the market always. 

Note:

I might be proved completely wrong by the markets, if you lose money following my suggestions - I will laugh at you :-). 

-Sri