Friday, April 20, 2012

Waves Strategy Advisors: Nifty continues to test patience and move sideways!

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Bottom Line: Nifty continues to have lackluster session with no directional breakout. A close above 5380 is necessary for directional movement.

Nifty Daily chart:

Nifty 60 mins chart:

 Waves Analysis:

We mentioned in our previous update, “Yesterday’s low at 5290 should be maintained if prices have to move higher. A break below 5290 will indicate sideways action will continue for few more days. Sideways or Triangle patterns are most difficult to trade. This pattern tests the patience of traders and ensures most of the traders are out of the market exactly at the time when trend is about to start. Predicting the exact day for the end of sideways correction is anyone’s guess but Time cycles are suggesting an up move can start within few days. However price confirmation is very important and a move above 5380 will confirm this bullish scenario. Any break below 5290 followed by 5250 will be bearish.” BANG ON!!!

Prices failed to move above 5340 level on Friday and continued to trade in sideways action during first half of the day. As soon as 5290 level was broken Nifty spot touched 5245 and bounced back from there closing the day at 5290. We have been very accurate in mentioning these levels as important. There has been some freaky trade on Friday wherein Nifty futures made a low of 5000 with huge volumes and Infosys made a low of 1950. This kind of trades can be due to algorithmic trading or wrong orders or technical glitch. It is anyone’s guess what caused the trade. But these things do happen in markets and the recent best example is US flash crash which happened on 6th May 2010 wherein Dow Jones Industrial Average plunged about 1000 points—or about nine percent—only to recover those losses within minutes. Mutual fund selling and High frequency traders are being blamed for such an event but there is no 100% surety on the cascading effect that resulted into the crash.

The case in point is even a freak trade made Nifty futures and Infosys touch insane levels but Nifty spot moved exactly between the range we expected. Prices behave in systematic predictable fashion and Elliott waves along with Time cycles and basic technical tools help us to forecast most probable future price path.

For now, sideways action can continue unless we see a move above 5350 followed by 5380 levels. A move above 5380 will increase the odds that downside correction since the high made on 22nd February 2012 has ended and next leg C up has now probably started which will give good trending move. A break below 5250 will take prices towards 5200. Wait for crucial levels to be taken out to avoid getting financially and emotionally drained out by trying to catch reversal points!

Monday, April 9, 2012

Nifty can move sideways to down for the week but medium trend is up!

Bottom Line: Nifty continued to have gap down action. Bias over short term is sideways to negative!

Nifty Daily chart:

Nifty 60 mins chart:

Waves Analysis:

Nifty had a gap down opening yesterday and prices drifted lower. Nifty opened at 5280 level which we had mentioned as crucial which was then taken out on downside. Prices stayed around another crucial level of 5250 before finally closing near 5235. The move has been steep and so the bias over short term is now negative. However the next support zone is now at 5200 which is the gap up area. Prices can try and fill this gap.

As we have said before, the trend down can be overlapping and it will be difficult to trade on downside since we are correcting the up move from 4650 to 5630 levels. Many of the stocks are exhibiting that their cycle lows are approaching around 16th April 2012. This suggests that we can have more of sideways to down action rather than impulsive strong moves this week.

As shown on 60 mins chart, we are moving in a well-defined corrective black channel and this on smaller scale can be seen as abc – x – abc type of formation and we are in wave a of second correction. This means we can move down little more today near 5200 - 5210 levels and should consolidate or move in a range for remaining of the day to complete wave b of 2nd corrective. This outlook remains valid as long as black channel is intact and prices do not exhibit steep selloff below 5200 levels.

For strong trend on downside, 5135 level should be broken today and failure to do that will suggest sideways action for the week with prices ultimately resolving on the upside. 5135 level is also a confluence of many Fibonacci Price – Time relationship and so exhibits very important level.

In short, given the gap down action the bias is negative as long as prices are below 5285 but Nifty can move in a range for the week. Trading on short side might be difficult due to complex corrective nature.