Hi everyone, I have tried to provide a holistic view of all the market cycles of Nifty from 2001-2021. This post may or may not make sense, hence just read without any predefined notion. This post took me a few days to get rolling, so please show some appreciation.
We will be talking about the following parameters:
1. Corrections after each cycle 2. Price versus RSI 3. The 3 major crashes from 2001-2021 4. Market structure 5. Date and Price range of each cycle 6. Mean value of RSI 7. Candlestick patterns formed before the reversal 8. Nifty vs US Dollar index(DXY) 9. Current Situation
Corrections after each cycle:
After each bull run, the market corrected anywhere between 0.382 to 0.786 Fibonacci levels. Normally, the correction was shallow, from 0.382 to 0.5 Fib levels. But in rare cases, when there was some external driving force, it corrected to 0.618 to 0.786 levels. At the end of each Bear run, the market rallied about an average of 167%, from the low of the Bear run to the high of the Bull run. In the current cycle, we have rallied about 110%.
Price versus RSI
If we look at the RSI levels of each cycle from 2001-2021, we can see that the maximum RSI at the peak was around 85 and the minimum RSI at the peak was 66. The RSI of the current cycle is 74.
The 3 major crashes from 2001-2021:
1. UPA 1 election crash of 2004 – The price fell spontaneously and corrected till 0.618 Fibonacci level, where it found support from the 50 simple moving average.
2. The Great recession of 2008 – At this time, the markets all over the world saw heavy selling pressure due to the collapse of the housing industry in the US. Nifty plummeted to around 2k, which coincided with 0.787 Fibonacci level. This level was also supported by the 100MA.
3. The Covid Pandemic of 2019 – The market witnessed a steep fall from 12k to 7k within 2 months. Again, this level was a confluence zone of 0.786 Fibonacci level and 100MA. Like I said in the beginning, the market only had a deeper correction to 0.618 and 0.786 Fibonacci levels only in the times of some external driving force. In all others cases, the market only dropped to 0.382 or 0.5 Fibonacci level.
Market structure:
Since 2001, we are in a continuous Bullish market on the monthly time frame. The price has been forming a continuous series of Higher Highs and Higher Lows.
Date and Price range of each cycle:
The market rallied about an average of 167%, from the low of the Bear run to the high of the Bull run. In the current cycle, we have already rallied to about 110%. Each swing on average took about 1008 days for the formation. On this note, the present swing is the shortest swing till now and took about 486 days for the formation. Who knows, what might we see next? The cycle from 2004-2008 lasted about 1338 days and gave about 392% gain and only had a few shallow corrections on lower time frames.
Mean value of RSI:
We can see that the maximum RSI at the peak was around 85 and the minimum RSI at the peak was 66. If we calculate the simple mean values of the 5 swings from 2001-2011, we get the mean value of the RSI at the swing high as 75 and the mean value of the RSI at the swing low as 40. Currently, we are already standing at 73.
Candlestick patterns formed before the reversal:
Although there are plenty of reversal patterns out there and any of them can occur at any point in time. But in the case of Nifty, we have seen only a few patterns in a repetitive manner. These include – Hammers, Dojis, and Bearish Engulfing. If you want you can see the names in a more specific fashion, you can call them as shooting stars, hanging man, spinning top, etc.
In the current cycle, we saw a series of hammers from January to April. But in May, a good Bullish candle was formed which broke out of the range of hammers. This invalidated the bearish bias. A small doji was again formed in June. Hence, we will have to observe in the coming months as to what type of candlesticks gets formed. This may help us in assessing the future direction of the market.
Nifty vs US Dollar index(DXY):
For the majority of the time, Nifty and DXY show a negative correlation sometimes they also exhibit an inverse relationship. A negative correlation is a relationship between two variables in which one variable increases as the other decreases, and vice versa. When the Nifty rises, DXY falls and when the DXY rises, Nifty falls. For a brief time period, we can also a positive correlation between the two when they both moved in tandem. At the moment, we are seeing an inverse correlation since the NIFTY is at a high and DXY is at a low.
Current Situation:
Lastly, if we observe, the price is currently sitting at the 1.618 Fibonacci extension level of the previous swing. If we are able to break through this level with good follow-up, we can see 18k level in the coming months. And if we fall from here, then we head to 14500 and ultimately 12500.
I hope you find this post useful. I may be wrong at some places, after all, I am just learning. Also, if anyone is interested in getting a consolidated PDF version of this thread, then you can message me, I'll provide it.
P.S: This is NOT investment advice. This post is meant for learning purposes only. Invest your capital at your own risk.
Would you like to hazard a guess of the Trigger for a major correction??
- Q3 or Q4 results
- UP Elections
Similarly, what would be triggers for a 18K?
johntradingwick
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@AnilChadda, I don't really like to make guesses but I am pretty sure the events you mentioned are not of that much significance to move prices on the monthly level. As for the 18k rally, the one and only trigger I see is "Hope". If the Covid scene gets better and better with a completely vaccinated population and new & better vaccines, everything will return to normal. This will boost the economy worldwide and the people will see a better and hope for a future. This might cause a rally towards higher prices.
But I am not the right person for the fundamental research. I just focus on the technical aspect. Whatever the price will show me, I will try my best to assess it accordingly. Hope this helps. :)
Amazing effort! Wow! Can there be 1.786 (17544) in between? Presently there is a divergence in the making in MACD and RSI in the weekly and daily charts.
johntradingwick
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@sanketsudan, Dear sir, there cannot be a 1.786 level as per the logic of Fibonacci numbers. To understand the Fibonacci levels, we need to understand their formation.
1. Each number is the sum of the two preceding ones, starting from 0 and 1.
2. This means the first Fib no =0, 2nd Fib no= 1, 3rd Fib no= 1st + 2nd, 4th Fib no= 2nd + 3rd, so on and so forth. This generates the Fibonacci numbers: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, and so on.
3. The Fibonacci ratios are derived from this Fibonacci sequence. When a number in the Fibonacci series is divided by the number preceding it, the quotient gives the Fibonacci constant known as the "Golden ratio(1.618)". Example:1/1= 1, 2/1= 2, 3/2= 1.5, 5/3= 1.66, 8/5= 1.6.....55/34=1.6176, 89/55=1.618)
4. The inverse process also produces a constant = 0.618. Example: 55/144 = 0.382 or 144/55= 2.618. This is how we get Fibonacci ratios from Fibonacci numbers.
5. Likewise, we can produce the following ratios 23.6%, 38.2%, 50% 61.8%, 78.6%, 100%, 161.8%, 261.8%, and 423.6%.
6. As you can see 50% is not a pure Fibonacci ratio, but it is still used as a support and resistance indicator. This is because people worldwide regard it as an important level.
As in the case of 1.786 level, no one really uses it, hence it does not enjoy the same respect as 0.5 level.
I am sorry I wasn't able to simplify this more. But I hope this helps.
sanketsudan
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@johntradingwick, Thanks for a rather detailed reply. I am merely trying to understand the realistic targets for current impulse wave (currently a corrective wave seems to be still in progress). The MACD and RSI divergence appears foreboding similar to that in Mar last year. We all are trying to put various theories into practice finally to make some money. What you have stated couldn't get simpler than that.
apratimbanerjee08
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Amazing detailed analysis. I have seen few people analyzing the overall Indian market structure and its bull/bear market cycles. Thank you for your insight.
One question --> in the last point, "Current situation", it seems to be that you're using the log scale for price but your fib scale is not set to log scale. Is there any reason for doing so? According to the fib retracement set to log scale, the 1.618 extension from previous swing high to swing low comes to around 17,000 points for Nifty. I may be wrong, but it looked that way.
Once again, thank you for this knowledgeable post :)
deb000
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amazing work. pls send me the pdf at unitedworld.deb@gmail.com
Would you like to hazard a guess of the Trigger for a major correction??
- Q3 or Q4 results
- UP Elections
Similarly, what would be triggers for a 18K?