USDINR broke year long consolidation! Nifty concept of multiple Moving Averages!!!

Following article is published in morning daily research report "The Financial Waves" by Waves Strategy Advisors.    We have been constantly warning our subscribers about an upcoming downtrend in Nifty which materialized today. To know more on subscribing this daily research report visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com

Bottom Line: Nifty continues to protect its previous lows on closing basis. Momentum is reaching extreme levels! USDINR gave a strong breakout from yearlong pattern…

           USDINR Daily chart spot:

Wave Analysis:

USDINR has given a very important move on Friday. Prices have managed to close above the year long resistance line. If this breakout as shown on above chart is valid then we should expect a strong up move towards 57 levels or higher very quickly. Indian currency pair has been moving more independently over past few weeks irrespective of movement in equity markets. However such isolated movement cannot last for extended period of time and we can see increase in correlation again between INR and Equity. Also INR has been constantly protecting the lower end of the trendline despite of sharp up move in equity markets.

Nifty up move on Friday failed to provide any negative movement on USDINR which was also up by more than 1% in single day. If the breakout is genuine and INR is leading this time then equity should turn down to support the breakout on USDINR.

In short, it will be extremely interesting to observe if Nifty can continue the uptrend on back of depreciation in Indian Rupee which is now expected to reach near 57 levels. But we have our doubts and equity markets should now oblige sometime this week by turning down and giving negative price confirmation. But unless Nifty closes below important supports we will refrain from catching a top!

Nifty daily chart:

Nifty 60 mins chart:

Wave Analysis:

Nifty continued to move in uptrend and has so far not given any negative price confirmation. The individual parameters are reaching extreme levels and slowdown in momentum is very much evident from the momentum indicators on shorter time frames. However as we have been constantly mentioning price confirmation is one parameter which is still pending. A strong build up in momentum from current levels will change the parameters that are derivatives of price but such movements are rare events. Please understand that the probabilities are still high for prices to turn but there are always alternative scenarios to be embraced in case prices do not conform as expected.

Even on Friday and testing period on Saturday Nifty and Sensex both have managed to close above the previous day’s low and not yet closed below any of the levels we have mentioned in past week thereby maintaining the short term trend on upside. In the entire up move from 5470 to current levels not a single bar has closed below previous day’s low and this one simple technique of price has not given negative confirmation. A close below previous bar does not necessarily mean start of downtrend but does indicate halt in the uptrend and atleast sideways action if not negative. Break of important supports currently at 6045 and 6020 will indicate a move atleast towards 5850 levels over short term. We will have clear downside projection once we have negative price confirmation.

Mean reversion:We are showing the concept of Moving averages and difference of 2 moving average which has been giving very good indication on maturity of trend. As seen on daily chart 5 period Exponential and 20 period Exponential moving averages are very good from providing supports, resistance and direction of trend. Each day’s low has been taking support on 5 days MA and only a break below this which is currently at 6045 will indicate that the short term uptrend is in danger. The difference of Moving average helps us to understand if prices are due for mean reversion. Mean reversion is a statistical technique and it indicates prices eventually revert to its mean. We are using 20 days exponential MA as mean. The difference of 5 and 20 MA has reached an extreme level seen in entire year which again indicates a mean reversion should happen and 5 days MA along with prices should move back towards 20 days MA.

USDINR movement:USDINR chart shown above is now added as another negative parameter for equity markets and if our projection on USDINR towards 57 is correct which cannot happen without turn in equity markets on downside. As we always mention correlation in Currency & Equity markets are high during major turning points and the lead lag effect lasts only for few days. The magnitude of rise or fall varies but turning happens in close proximity.

RSI on hourly chart continues to show loss of momentum and negative divergence. However a strong move up above 6140 will remove this divergence and will also break the upward sloping resistance trendline opening further upside potential.

In short, we continue to re-iterate that many of the techniques are showing weakness in current uptrend but prices are yet to confirm. A move below 6045 will now be required as first sign of weakness and we will adopt alternative scenario on close above 6140 levels and /or if overall breadth & momentum of market starts improving from here on!

The above is published in morning daily research report "The Financial Waves" by Waves Strategy Advisors.    We have been constantly warning our subscribers about an upcoming downtrend in Nifty which materialized today. To know more on subscribing this daily research report visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com