NIFTY below 8000, What Next

CNX NIFTY SPOT made a high of 9119.2 in 4th March 2015 trading session and since then it is falling in lower low/high mode. Price action in the time period of mid October 2014 to late April 2015 completed the bearish head and shoulders chart pattern of 900 points with rising neckline support at 8350 visible in fig 1.1. This provided the price target of 7450 on the downside. Prices retested the rising support turned resistance line at 8450 and are falling sharply since then. 

In 9 June 2015 trading session prices tested the slightly rising neckline support of the complex head and shoulders top and rebound sharply making the support line a valid one. In yesterday’s trading session prices violated the same with bearish engulfing candlestick of around 200 point which engulfed previous three sticks giving convincing breakdown. A weekly close below 8005 levels will further confirm the weakness in broader indices. This complex bearish head and shoulders chart pattern visible in fig 1.2 has a height of 1130 points with neckline support at 8005 providing downside target of 6874. However, it would be early to expect that the equality target at 6874 will be achieved.

As the impulse wave of the Nifty which started on 28 th Aug 2013 at 5118.85 and rallied 4000.35 points before ending at 9119.2 has a 38.2% and 50% retracement levels at 7590 and 7120 respectively which can also act as a good support and index can reverse the direction from the same. Breach of the falling resistance line will be the first indication that the bottom is in place. Monthly MACD a reliable indicator which turned positive in Nov 2013 has turned negative last month and weekly MACD has slipped below 0 line which are quite bearish sign. 

Thus, with the above facts we can conclude that the Nifty will continue its southwards journey with expected targets/supports pegged at:  7590 (38% FIB) 7443 (H&S Tgt) 7120 (50% FIB) 6874 (Complex H&S TGT) 

Alternatively, if the falling trend line resistance which is currently at 8400 is violated first then it will negate the bearish view. And on cross of 8500 the Nifty can retest its all time high of 9119.