Nifty in next wave up...

Bottom Line: Nifty crossed above the level of 5630 thereby forcing us to adopt alternative scenario for current up leg…

Nifty Daily chart:

  

Nifty 60 mins chart:

Wave Analysis:

We mentioned before,“Nifty daily chart shows that prices have managed to break above the red trendline and close near 5578 level. If this is a valid Ending diagonal pattern then it is known as throwover above the 1-3 trendline. But if prices have another Gap up opening on back of FDI norms and exceed the maximum allowable limit of 5630 then the alternate scenario shown in red will become the preferred one. As per the alternate scenario wave 3 is ongoing and wave 2 ended as a running correction”.

Consecutive for second session Nifty had a gap up opening. It had almost 50 points gap up, prices decisively tookout the high of 5630 and moved higher till 5652 levels. This forces us to adopt the alternative scenario and Wave 2 ended as a running correction and wave 3 is in the play.

Yesterday, RBI announced monetary policy.There was no cut in repo rates exactly as we expected based on the bond yield. Index did react lower from the highs after the announcement but than managed to recover and finally close with 30 points up. The bias continues to be positive but instead of 5^th wave it will now be in the form of 3^rd wave.

Existing long positions for those who have been following our trailing stop method please trail your current positions to 5526. Trailing stop method becomes very effective during strong uptrends and 60 mins chart marks the levels from where we have been mentioning the crucial levels on downside. Market has not broken below any of these levels so far.

The move up has been driven on back of events and gapping actions and creating fresh longs during such environment have been challenging from trading perspective. As long as the channel shown on 60 mins chart is intact the trend remains positive.

The equality of wave 3 to wave 5 is now near 5820 levels. Please understand this does not mean that prices will turn back down from that level but indicates that there can be resistance to the current up move near that zone. Unless the bias turns negative either by break of short term channel or by formation of lower highs and lower lows the trend remains positive.

In the last trading session, after long time we have observed that midcap and small cap stocks rose by 1.15% and 1.13% respectively and became an active participant in this up move.

In short, as index crossed above 5630 yesterday the bias is positive on Nifty and participation from Midcap and Smallcap sectors yesterday shows late improvements in overall health. The bias is now up as long as 5526 is intact on downside over short term.