Friday, May 4, 2012

Waves Captal: Nifty continues to be in "NO TRADING ZONE"

Following is picked from the equity daily research publication by Waves Capital ( Write to for more information about this report.

Bottom Line: Nifty continues sideways action. Average directional index pointing towards trending move to start soon!
Nifty daily chart:
ADX indicator

 Nifty Daily chart:

Waves Analysis:

Waves Capital: We mentioned in our previous update, “In short, we can continue sideways action in narrow range for a day or 2 more before eventually moving up. Break above 5280 will be strongly positive. Any move below 5190 will indicate sideways consolidation is extending further.”

Failure of prices to move above 5280 and break of 5190 indicates that the sideways action is continuing further. We have shown Average Directional index (ADX) on first chart. This indicator uses the technique of Average True Range that calculates the true range of current bar compared with the previous bar. ADX helps to determine if the market is trending or non-trending in either of the directions. We can see that this indicator has reached the lowest level which has been seen only 4 times since 2005 till date. The value of 11 was last seen in January 2012 when the big rally started and we can see the sharp increase in this indicator above 20 levels indicating a trending move. During current sideways action over weeks ADX has touched the level of 11 again on 20th April 2012 and bounced back from there. This is suggesting that a trending move shall start very soon. Every time these low levels have reached before we can see a move of atleast 600 points on Nifty in one direction.

Please understand this indicator does not provide information about the direction of the move but it does give a clue if we shall start trending which looks overdue now!

The second chart of Nifty shows that we have been moving in a contracting fashion. Also the number of days has been minimum 3 for up legs and maximum 6 for down legs.
We have completed 1 day of this down leg and there is possibility of atleast 2 more days of sideways action possible. This down leg from 5280 can also take 6 days like previous moves. But since the channel has contracted so much we doubt this leg will last for 6 days. It can make a low of 5160, bounce back over next 1 day and again retest the low at 5160 making it 4 days for completion i.e. by Monday or Tuesday we can probably complete this down leg. It is however imperative for prices to sustain above 5150 – 5135 levels. A close below this level will increase the odds that the trending move can start in downward direction.

Trading in such range bound market is always tricky and when the contracting phase is in its later stages it gets more and more difficult. Avoiding trades until a clear trend emerges will save you both emotionally and financially. Unless a range of 5135 – 5280 is broken avoid looking at stocks for directional moves since most of the stocks will whipsaw around crucial levels every time Nifty changes direction. Nifty is currently in “NO TRADING ZONE” unless we close below 5135 or above 5280…

Option traders should avoid writing calls or puts at such low volatility levels and when we expect a directional move to happen soon after next few trading days!

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