Monday, May 6, 2013

Nifty major trend continues to be down but short term positivity plausible!

The following is published in daily research report "The Financial Waves" by Waves Strategy Advisors. For more information visit or write to

Bottom Line: Nifty failed to take out the low created immediately after policy announcement. This indicates one minor push up pending!

Nifty daily chart:

Nifty 60 mins chart:
Nifty 20 mins:
Wave Analysis:

We mentioned in previous update, “In 2013, markets have closed negative on positive news and over past 2 times prices closed down on day of repo rate cut by RBI. 12 months Bond yield currently stands at 7.46% which we use to judge possibility of rate cuts….In short, we continue to look at current market as topping with first negative confirmation below 5910 followed by 5850 levels. Today’s close will provide more clues to the near term direction of the market.”

RBI cut repo rate by 25 bps for 3rd time in this year and markets obliged by closing negative again on the day of monetary easing. As soon as the announcement was made Nifty made a low of 5930 but later recovered. There was high intraday volatility and after the announcement that there is little room for further monetary easing, market started rallying making day high at 6000 levels. This continues to indicate an up move on negative news and down move on positive news.

A very important observation on Friday is that even though Nifty closed down by 55 points on day of repo rate cut it has managed to protect the lows made at 5930 level immediately after the announcement. Prices turned volatile during the day but have constantly managed to protect 5930 level. A spike or panic low if not taken out during same day or next day it indicates supporting action and there is some potential left on upside.

A very close observation of wave structure as shown on 20 mins chart indicates that the move up from 5870 to 6020 took approximately 23 bars and prices have retraced only 61.8% of this up move in more than 23 bars. This clearly indicates that the minor trend is still positive and we can expect a push up towards 6040 levels.

Nifty 60 mins chart shows that prices are moving up in tipple corrective manner and prices are in minute wave c of 3rd correction. There is clear loss of momentum and there is negative divergence with RSI indicator. Prices have also now moved from steeper channel to a channel with lesser angle. This indicates a transition phase during a topping process.

Sentiments have started turning positive exactly at wrong time with upside projection of 6300 to 6700 levels by many analysts and traders. This is exactly what has happened even before when markets were moving up in primary wave 5 before finally topping out near 6110. We look at this as negative sign from medium term perspective.

However over short term, Nifty daily chart shows that all the while from 5480 to recent high of 6020 prices have closed above the previous day’s low and have also managed to protect the important low at 5910 level mentioned in previous update indicating some more steam left on upside before turning down.

In short, failure of prices to start trending move on downside on day of policy announcement and protecting the lows at 5930 and 5910 our bias continues to be positive. However we are looking this move as topping and not as start of new leg on upside as long as close is below 6110 level. Next target zone for this up move is anywhere near 6040 to 6070 levels. A move below 5910 will provide first negative confirmation that down move towards 5640 has started.

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