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Nifty stuck between two gaps!

, July 17, 2012, 0 Comments

Today Nifty gapped up by more than 30 points and then started to slide down as if it was destined to spend the day to fill up the gap.Market hates to leave any gap unfilled though the time it takes to fill is anybody’s guess. Currently Nifty is stuck between two gaps as shown in the chart below though the gaps are relatively small it is relevant for traders. These gaps themselves are good resistance and support levels so Nifty was supposed to be stuck between 5266 and 5190 before the index breached the lower gap marginally in today’s trade. If the bearishness still continues then there are high chances that the gap might get filled tomorrow.

But when we look at Nifty chart from Elliot Wave perspective then it looks as if the gap might provide some resistance. There are thousands of technical indicators used by all kinds of traders but most of them are lagging indicators and only few have ability to predict. Elliott wave Theory is one of them and traders should be forewarned that it is not the Holy Grail. Any chart can have at least few numbers of counts and in the following chart we have labeled two counts, one in yellow and another in red with prefix A for alternate. The count in yellow says that that most probably we are in wave four and alternate count says that we are in corrective phase after wave 5. Whatever the count is we see an expanding ABC wave at work and hence it will take a while for the gap to get filled.

So based on this outlook we feel that shorting a strangle with a call of strike 5300 and a put of 5100 strike would be preferred trade for this week though any abnormal event might make this trade a complete washout. Following table presents various other trades that are possible.


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