Saturday, September 7, 2013

Sensex / Nifty Elliott wave continues to show complex movement

The following was published on Friday morning research report "The Financial Waves Short term Update" by Waves Strategy Advisors. For more information visit

Bottom Line: Nifty had a strong Gap up opening of more than 100 points, forming a V shaped recovery!

Data as on 5th September:

Sensex daily chart:


“The Monthly Financial Waves” is now published. It has touched upon following: USDINRimpulsive move on upside, Sensex - Why the long term trend has changed to down since past 3 months, BSE Smallcap index forecast, India GDP growth vs. Sensex, Banking Index, DJIA biggest ever negative divergence, Gold in 6 different currencies shows major trend is down!

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Nifty daily chart:
Nifty 60 mins chart:
Wave Analysis:

In previous update we mentioned that, “This ratio indicates that the trend lasted for 5 days and covered 50 points daily but on extreme basis it is lasting for 1 day and covering 200 points. So in totality the output is same but the equation has totally changed!In a nutshell the increase in price movement with reduction in reaction time has made trading extremely challenging even for the best of the traders which is independent to whether you are long or short.”

Nifty had a strong gap up opening of more than 100 points and prices opened just above the important level of 5540. This time as well the strong down move is completely retraced back in a V shape recovery. After the opening, prices stayed in a range of 5600 and 5550 for the rest of the day.

We are showing Sensex chart along with an important channel. Sensex seems to have more respect for important trendlines than Nifty. But this time we can see that Sensex also broke the channel decisively on downside but only to reverse back later and re-enter into it. This will again be counted as false breakdown.

One more technique that we have applied to confirm that direction of bigger trend is difference of Moving average. When you take difference of important moving averages which provides support and resistance to prices the difference of them behaves like an oscillator and moves between the range. This technique helps for mean reversion and whenever the differences touch extreme values we can expect reversion back to 0. Apart from this one more important thing we come to know from this is the level from where the reversion is happening. We can see on Sensex chart that this difference touched the level of -600 which was only seen during the entire fall of 2011 and then it was not seen during the rise of 2012 where the extreme level was only -500. This indicates that the market might have started a bigger downtrend and current bounce back is upside correction. However, we have to apply other techniques like wave counts, Fibonacci ratio to understand till what level this bounce can happen.

As shown on Nifty daily chart, volumes continued to be more than average of over past 2 years. This can happen in case of accumulation or strong distribution which presages start of a strong trending move very soon.

The short term chart suggests that prices ended w-x-y correction and wave y formed an expanding triangle pattern. As we said before these are very rare and challenging pattern with false breaks on either sides. We think that entire wave y was expanding and ended near 5400 as an unorthodox low. We are now seeing an upside correction of the entire down move from 6090 to 5118. There re 2 Fibonacci retracements one from the orthodox low and other from unorthodox low of 5400. 76.4% and 61.8% are coinciding near 5850 level which is also the first target of short term Head & Shoulder patternas shown having neckline near 5650 as of today and increasing.

Bank Nifty has infact bounced back from near the important trendline valid since 2001 which we have shown in long term forecast in the monthly research. On downside 7920 is extremely crucial level for Bank Nifty from long term perspective.

In short, we can expect short term bounce back first towards 5750 levels. However, the concern remains is PCR which is still at 1.5 and Sensex is just retesting the lower trendline (red) of wedge pattern. Let see if the uptrend also terminates in just 2 to 3 days again with a V shape fall or this time the trend lasts little longer than the norm seen over past 1 month. Continue to use strict money and risk management strategies during such times unless a clear trend emerges!

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