Nifty shall move above 4950 for positivity!

Bottom Line: Nifty gave a smart recovery after having another gap down opening on Friday. Success to close the gaps indicates positivity!

Nifty Daily chart: as on 18th May

Nifty 15 mins chart: as on 18th May

 Wave Analysis:

We mentioned in previous update, “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 ….”

On Friday, Nifty had a 70 points gap down opening similar to that of Wednesday’s opening but prices rallied back smartly to close the Big Gap AGAIN!!! This indicates positivity and confirms that the gaps are probably exhaustion gaps that occur during the final stages of trend. 

As shown on Daily chart, Nifty continues to follow channeling technique very precisely. We keep mentioning a very simple technique – channeling to be applied to get probable support and resistance levels. Prices invariably move between these channels if drawn properly. Prices took strong support at the lower trendline of the red channel drawn from the top of February 22. The low made on Friday also only momentarily breached the extended trendline (blue color) drawn from the top of Dec 2010. Prices have managed to close above the minor blue trendline of the last leg of down move from 5250. All this indicates positivity but further price confirmation is obtained on close above 4950 levels.

The Ending diagonal structure shown on 15 mins chart has equal directional legs i.e. waves e = wave c = wave a and wave d = wave b. Also waves b and d retraced the prior legs by exact 50%. It is really a thrilling experience to see how accurately freely traded markets follow mathematical ratios and symmetry to the smallest degree of movement.

If the breakout from the wedge is valid we should now head atleast towards 5100 levels very quickly probably in less than 1/4^th of the time the structure took to form. Also if higher degree wave B is over on the downside, wave C shall take prices above 5600 levels. It is however important to wait for further positive confirmation above 4950.

In short, if Nifty manages to cross above 4950 we should head atleast towards 5100 or probably higher. Any move back below 4830 will indicate the correction is not yet over. For long positions keeping 4830 as stop loss is extremely important!