Wednesday, July 31, 2013

Indian equity stealth bear market continues with Nifty not reflecting true picture

Bottom Line: Nifty reacted sharply lower even when RBI kept policy rates unchanged. The trend continues to be down!

Nifty daily chart:

Nifty 60 mins chart:
Nifty 10 mins chart:

Wave Analysis:

In previous update we mentioned that “As we have mentioned before the target for wedge pattern comes near 5810 from where it has started and 5750 is where we think this wave d of wave (e) in triangle should atleast touch.”

Nifty moved down exactly as expected. Prices made a low of 5748 and closed near the lower end of the day. After RBI announced that the rates are kept unchanged there was minor upside reaction towards 5860 levels and prices turned down from there. The selloff continued throughout the day with no bounce back. Also the selloff was not in form of a spike but gradual throughout the day. Midcap and Smallcap indices continued to bleed and there is some serious carnage in widely followed stocks that people prefer buying on dips. We again re-iterate that current market is conducive for traders and hostile for investors. The trend changes every 1 week and majority of the stocks are moving down.

USDINR showed sharp depreciation against major currencies simply reflects that RBI interventions had no meaning. Trying to find out fundamental reasons for such movement is everyone’s guess. But from technical perspective the move up from 54 to 61 was impulsive in nature and since then USDINR is moving in overlapping corrective fashion within a range. It is too soon to say if that correction is over and the trend on upside has resumed but if 62 level is crossed then we can see some serious currency crisis.

The advanced decline ratio deteriorated drastically with 681 advancing against 1590 declining. Such extreme values are seen either before serious capitulation or just before reversals when everyone turns bearish and market reverses on upside. We have seen over past 3 months that such extreme values resulted reversals but we would not suggest catching a bottom here. 5845 – 5860 can be now used as ideal stoploss for short positions and only a move above these levels will indicate that short term bottom is in place.

Nifty 60 mins chart shows that prices are moving in a downward sloping red channel and yesterday’s high was also exactly on the channel from where prices reversed. We are showing Nifty 10 mins chart as well to understand if the internal wave counts are corrective or impulsive. As shown we do not see 5 waves but complex corrective on downside with prices in 2nd corrective pattern. Yesterday’s selloff broke even the lower trendline of blue channel. At 5720 first correction w is equal to second correction y. This double correction can also develop into a triple correction. Only a faster retracement of the previous leg will indicate that the short term low is in place. Till that happens it is better to position in the direction of trend which is currently down.

In short, our bias continues to be negative as long as 5845 is intact on upside. Prices are now near the Gap area of 5700 to 5750. If prices sustains below 5750 we can then expect this Gap to be filled.

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