As Published in The Financial Waves short term update morning 8.30 am by Waves Strategy (www.wavesstrategy.com)
Bottom Line:Nifty continues the downward bias as long as the previous bar high of 5345 is intact on upside.
Nifty Daily chart:
Nifty 60 mins chart:
We mentioned before, “…If the entire wave 3 is over at the top of 5450 then the current leg is wave 4 and wave 5 will be smaller than wave 3 giving the final target of the entire up move that started from 4770 as 5550. Next few days of price action will tell us if wave 3 is indeed over and 4th is ongoing or it is wave b of 3. Either ways there is not much steam left in Indian markets and once the up move gets completed near 5550 – 5650 there will be a steep move on downside back towards 4770 levels….In short, the bias for Nifty is negative with immediate support lying near 5290 and resistance at 5360 levels”
As expected a move below 5350 level took Indian market towards 5290. 5350 level which was support before acted as resistance and prices failed to move above 5345. The selloff was seen throughout the session and index closed near the lower end of the day near 5290 levels. We have mentioned before this as the next support level and prices closed exactly on that support.
The odds have increased now that the up leg that got over near 5450 was complete wave 3 and 4th wave is ongoing. If this is valid then, in Ending diagonal pattern 5th leg is normally going to be smaller than 3rdleg both time and price wise.This reduces probable target for 5th leg now towards 5450 to 5550 levels. The deeper this current leg corrects previous up move the lesser is the chance for 5th wave to go towards higher end of the range which is near 5550 levels.
The selloff has been visible in high beta sectors and this is typical during such pattern formation. The bigger index shows less movement but the underneath breadth and momentum keeps deteriorating. Food for thought: the stocks that already look to be at beaten down levels can see serious capitulation as the index also starts moving down once the up move gets completed?
The only hope looks to be the banking sector which still hasnot started the 3rd leg (corrective 3rd leg since it might also be forming an ending diagonal pattern or probably triangle).
Over near term as shown on 60 mins chart the bias continues to be negative as long as 5345 is intact on the upside and prices continue to move within the red corrective channel. The strong support is now near 5250 - 5260 level which is also the previous gap up zone. Wave 4 can terminate near this level.
In short, the medium term trend is now in late stages of up move and the bigger leg down might start sooner than expected. A move above 5600 will force us to adopt alternative possibilities else expect the trend to terminate anywhere between 5450 – 5550 levels. We are watching the movement very closely and we will warn as soon as we suspect end of larger degree up move…