Thursday, August 22, 2013

Trading Elliott waves: Nifty bigger trend continues to be down but short term pullback is possible!

Following article is picked up from today's morning report "The Financial Waves" by Waves Strategy Advisors. For daily research subscription please visit

Bottom Line: Nifty had a strong negative close after Gap up opening but prices reversed from the zone of 5480 – 5520!

Nifty daily chart:

Nifty 60 mins chart:
Wave Analysis:

In the previous update we mentioned that “In short, as the larger trend of the market is down it is better to adopt sell on rallies strategy and also keep stoploss at sufficient levels to take care of volatility. On upside 5480 followed by 5550 will be important level to watch and move below 5340 will continue the downtrend.”

Nifty had a strong Gap up opening of more than 90 points near 5495 levels. Prices made a high of 5504 and failed to retest that level again during the day. Post 1 pm the selloff pressure intensified and prices moved below previous day’s low of 5300.

In previous update itself we mentioned that, “During such high volatility environment it is prudent to have good risk management and money management strategies designed before the market opens in order to avoid any impulsive reaction to market movements. For example: A Gap down of 60 points would have resulted into strong selling emotion exactly at the lows and when the Gap was covered which was indeed minor positive sign would have resulted in creating longs but only to lose on both sides. Even if you are placed on the right side of the market it does not necessarily mean making money would be easy since volatility is going to be high.”

The reason for re-mentioning the entire para from previous update is that yesterday again the same thing happened but on opposite direction. Nifty had a Gap up opening of 95 points probably creating strong positive emotion exactly at the top and when the gap was filled and prices moved lower near previous low of 5300 one would have gone short but only to see that there is channel support near that level. This would again stop out both longs and probably shorts if there is a positive move again tomorrow.

From trading perspective it is therefore better to wait for prices to reach near the upper end of the channel or atleast show some time correction if not price correction before creating any short position. We re-iterate that the bigger trend of the market is down and any pullback towards crucial resistances should be used as selling opportunity rather than buying for short up moves!

The daily RSI has now arrived near 30 levels from where prices have reversed many times before over past 1 year but the difference is that the previous major trend was on upside and currently it is on downside. Nevertheless this still shows that short term bounce back cannot be completely ruled out. As shown on 60 mins chart, the low made yesterday is exactly on the lower trendline at 5270. Also there is one minor positive divergence. During strong downtrends we have seen channels and divergences failing but we cannot assume beforehand that it is not going to work. The reason for making such contradictory statement is that the situation is not ripe for fresh shorts as of now and there are times when one has to wait before pulling the trigger for a good trading setup.

Over short term, for selling pressure to intensify prices have to break below 5250 early during the trade and then should not show any attempt of bounce back. If that does not happen we can expect some attempt on upside again towards 5400 levels.

In short, the major trend of the market is down and any pullback should be short in terms of price and more in terms of time. 5250 is now next support on downside and 5450 can now act as good resistance. 

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