I prefer using classical technical analysis to get a perception about the markets, especially at higher timeframes. Here are a couple of charts on US Market NASDAQ Index (Daily 200 Moving Average Charts, Quarterly – Market Profile, Quarterly ADX Divergence, Quarterly Smooth RSI) with an interesting perception which indicates potentially overvalued NASDAQ charts with a greater mean reversion odds.
Nifty Futures is still not out of compression yet and continuing with the 10600 – 10900 range for July series. More frustration is likely among the trend followers and short-term direction index futures traders. Volatility is flip-flopping. It is always good to recognize this sort of tough game for any kind of directional players that will eventually reduce overtrading.
One of the reasons we use market profile is to understand the market conditions and how the other players are positioned and what kind of trade opportunity the market conditions provide and where most of the other people are likely to keep their stops. At times the inferred data points from market profile reveal very high probability trade setups with a very good risk-reward ratio. Here is the interesting chart setup from S&P 500 Futures(ES Mini Futures) and the reason why in a short-term S&P500 will fall 50-60 points from the current level of 2792.
Nifty Structure is poor in the last three trading sessions indicates the presence of short-term players. Often short-term players are fickle minded and they have a tendency to reverse their positions at the edge of the balance. On Mondays, Trading session price moved towards the 10820 and 10835 levels followed by price rejection at the top resulting in a poor structure and poor high at the days top. This provides interesting trade setups to fade towards the previous poor structures.
Grade 2 & Grade 3 High Probability Short covering Rally/Vertical Long Liquidation is more of a visual pattern which explains why a potential short covering / long liquidation pattern has to arrive when a specific trading behavior is observed. How to Initiate trades, when to invalidate setups and what are the high potential probe zones where the price can be expected to revisit in a very shorter timeframe.
Poor Structure in Nifty futures that the regular daily structure last couple of days indicating that more of emotional shorter term players are reacting to every tiny news information very emotionally. However, there is a lack of serious money last couple of days keeping the market in a 200 point tight range since 25th May 2018.
Nifty Futures during May series ended marginally negative despite news factors like Karnataka hung assembly, EM Currency crisis, Italy Crisis. Year to date Nifty is up by 1.7%. The first half of the June Expiry series trading could be in the range of 10600-10800 range. Volatility Index (India VIX) also trading below sub 14 levels indicating a muted trend in the near future.
Nifty Futures on Friday’s trading session again bounced back above important and critical reference 10564 (Double distribution reference). Thursday’s and Friday’s trading session involve more of a old money covering their shorts rather than a fresh buying. That brings the question is the inventory adjustment is over as short term inventory when short to too short on Wednesday’s trading.
Nifty Futures started its liquidation phase since the start of Karnataka election results. Clients are liquidating their major long positions and parallelly PRO+DII+CLI also exiting their shorts positions. Most of those long liquidations so far resulted in a net negative trend.
Nifty Futures on Wednesday trading session exactly respected at the Tuesdays prominent POC and also selling continued at days open. Day ended with a spike with a poor structure combination indicating a potential pullback towards 10540 levels as the short term trading inventory goes short to too short. Current swing low is not secured yet (will be revisited in a very shorter term).
In the financial markets, often a set of market participants keep on adding long inventory of a particular trading instrument during bull markets (long inventory pile up phase) over a period of time. At times the long inventory goes to the extreme which is often followed by the liquidation of those piled up inventories (liquidation phase). It is a trading good practice to understand which participants are piling inventories and who in the markets are cutting down their inventories.
Nifty Futures formed a back to back secured high indicating a potential swing top formation and also on Friday’s trading session broken 2 week low comfortably and closed below that comfortably. Immediate shorter term resistance coming around 10720 levels. In the last article, we talked about Too Many Weaker References dominating Nifty Futures.