Thursday, May 17, 2012

Nifty at crucial Juncture!

Bottom Line: Global market selloff takes a toll on Indian markets!

Nifty Daily chart: 
Nifty 15 mins chart:
 Wave Analysis:

We mentioned in previous update, “Advance Decline ratio was 1:1 which does not increase conviction in any direction. Prices usually move violently on a break out from wedge shaped structure but we are not seeing that even after trendline being broken on upside. This indicates the formation is probably not yet complete.”

Hang Seng (Hong Kong) & Kospi (Korean) index was down more than 3%, Australian markets were down more than 2%, Japanese, China, other major Asian indices were down more than 1%. All this strongly indicates the selloff was not localized but was a global event yesterday.

Nifty had a big gap down opening of 60 points. Gaps after sustained down or up moves can be exhaustion gaps but it is very tricky to take that stand now unless the gap is filled within a day or two.

Nifty 15 mins chart shows that the ending diagonal pattern is still valid even after a big gap down opening of almost 60 points on Nifty. Prices have been beautifully sticking on the lower blue trendline as shown and the upper red line is acting as strong resistance.

Wave c = wave a and wave e is so far 0.618 * wave c. It is usually observed that wave e is not more than that of wave c in a wedge formation (a guideline). This strongly indicates that for the wedge formation to be a probably pattern Nifty should not move below 4800 levels.

However, we again reiterate the trend continues to be down and bias is negative. Prices have so far not given any positive confirmation even after indicators being oversold and showing positive divergences. Failure to bounce back on divergences indicates inherent weakness. Wave counts are helping us to gauge the maturity of current trend but unless price confirmation on upside is obtained waves can keep on extending downwards.

In short, 4800 – 4830 should be the final line in the sand for prices to turn up. Failure to sustain there will take Nifty towards 4600 – 4550 levels and test the previous 2012 lows. First minor confirmation will now be obtained only above 4950 and higher highs and higher lows is a must to indicate that the trend has changed from down to up. 

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