Friday, July 13, 2012

Waves Strategy Advisors: Nifty Scenario Analysis!


Following is published in Financial Waves, a daily publication on Indian Equities. Write to helpdesk@wavesstrategy.com for more information...


Bottom Line: Failure of Nifty to show momentum in the 3rd leg opens up couple of probable scenarios…

Nifty Daily chart: 

Nifty 60 mins chart:
Scenario 1


Scenario 2: 
Scenario 3:
Least preferred



Wave Analysis:

We mentioned in previous update, “In short, a move above 5350 will indicate resumption of uptrend and any move below 5290 followed by 5257 will make the pattern very complex opening up number of probable scenarios.”

Nifty had a Gap down opening of almost 60 points and opened near the crucial level of 5257 that we mentioned as crucial. However later in the day prices failed to sustain near that level and drifted lower towards 5220 levels. Failure of Nifty to show momentum on upside, opens up number of probable scenarios

Nifty daily chart shows that prices decisively closed below the channel support which we mentioned as important. Prices can now find support near the 200 days moving average at 5110 levels.

We have shown Nifty scenario analysis showing 3 different scenarios in the order of preference and probability.

Scenario 1: The first scenario suggests that wave ii is not yet over and is still developing in the form of running correction. To accommodate Time – wise correction we can have minor wave i at the top of 5180 and wave ii is ongoing which can end anywhere between 5150 to 5220. This is the most bullish scenario and wave x being almost 2.618 * wave w. Wave y can take couple of more days to complete before finally opening up wave iii on upside.

Scenario 2: This scenario suggests that 5 waves impulse on upside is over and prices have started correcting in wave 2. If this scenario is valid then Time – wise the correction will take more than a month and prices can move between 5000 to 5300 levels. This scenario will be very much challenging from trading perspective as it will be complex overlapping formation lasting for more than a month in a range of 5000 – 5250/5300. If this scenario is valid buying on supports and selling on resistances strategy should be adopted.

Scenario 3: This is the most bearish scenario and suggests the entire move up either corrective A-B-C or an Ending diagonal. If scenario is valid there can be some steep correction expected and prices can head towards 5000 level very quickly. However this is the least preferred scenario given the strength in Midcap and Smallcap sectors and there is no loss of momentum as seen from RSI indicator. In case of wedge, there should be some serious loss of strength on upside which is not seen here. So we keep this scenario as least preferred.

Existing positional longs can keep 5190 level as stop given the strong channel support coming in that region.

Next few days of action will clarify which one of the above 3 scenarios are valid. Till then keep your emotions under check and reduce the exposure as we have cautioned before changing the mindset from extremely bullish to neutral stand will take sometime and markets can be extremely dynamic and fast.

In short, over short term expect some range bound movement between 5190 – 5300 levels. Move above 5350 will open up scenario 1 and resumption of wave iii on upside. Move below 5130 will make Scenario 2 / 3 as valid options. 

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