Tuesday, February 5, 2013

Nifty started the next leg on downside..ATR indicates strong trend to start!

Bottom Line: Nifty continues to test the next support near 5980 levels. A break below this will increase the selling pressure.

Nifty Daily chart:

 Nifty 60 mins chart:
 Nifty Vs. ATR
Wave Analysis:

We mentioned in previous update, “A move below 5980 should intensify the selling pressure and prices should move down in the form of wave iii. ….Break of Ending diagonal pattern can result into violent moves where prices normally retrace the complete pattern from where it started in 1/4th or 1/2 the time. The starting point of this pattern is near 5600 which can be reached very soon.”

Nifty has been constantly failing to move in sync with Global markets. The strong rally seen in US and European markets in previous trading session failed to result into any meaningful rally in Indian markets. Nifty had a gap up opening of almost 25 points and prices made a high of 6038. However it failed to cross above the Friday’s high and started moving down making a low near the support of 5980 level.

From Time perspective, wave 5 took approximately 46 days to move from 5600 to 6110 which was touched on 29th Jan 2013. So prices should retrace back towards 5600 in around 12 to 23 working days starting 30th Jan 2013.

An important thing to observe is change in premium of Nifty Futures contract. Futures were trading at a premium of around 35 points as of Friday’s close which got reduced to less than 10 points. Also Nifty put options showed more increase in price compared to change in spot. This is a bearish sign from Derivatives front.

Prices have now closed below the 20 days Exponential moving average for 2nd consecutive day which continues to indicate bearishness. Also the daily bars have been constantly failing to cross above previous day’s highs since the high was made at 6110. Advance decline ratio was at 1170 advancing against 1700 declining which continues to indicate weakness in broader market.

The third chart is of Nifty and Average True Range (ATR) of 14 days. ATR measures the range of market over past 14 days which is now near 50. This indicates on an average Nifty has a movement of 50 points. This does indicates that on an average on intraday basis Nifty is moving by mere 50 points. We can see that such low value of 50 was seen in 2007, 2008 and only once in 2010. Except 2010 when the move up on ATR was associated with move up on Nifty, rest all the times ATR bounced back from near 50 values resulted in steep down move in index prices. Looking at other technical tools we think this time as well the up move in ATR should be associated with down move in Nifty.

The wave counts over short term is little tricky and we are showing one of the probable counts on 60 mins chart with current move down in wave iii. However wave ii has taken lot of time compared to wave i and so current down leg can also be classified as a-b-c complex correction. Next few days of price action will clarify the wave counts. But either of the scenario indicates bearishness with latter being less steep compared to first.

Existing short positions can now trail their stops towards 6040 which is yesterday’s high.

In short, the trend of Nifty continues to be firmly negative as long as 6040 is intact on upside. A gap down opening below 5980 will intensify the selling pressure with next minor support coming near 5940 levels.

To view on daily basis where we expect Nifty to head along with stocks which provide good short to medium term opportunities subscribe to "The Financial Waves" research report by Waves Strategy Advisors. For more information visit www.wavesstrategy.com or write to us on helpdesk@wavesstrategy.com

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