Friday, October 25, 2013

Nifty showing weakness above 6200! High probability of downside reversal...

The below research report is picked up from daily "The Financial Waves STU" that not only have Nifty but 3 different stocks as well on daily basis. By Waves Strategy Advisors. Please visit for subscription options

The data and charts are as per today's morning before markets opened. Bottom Line: Nifty continued to form red bars for 3 consecutive period and closed negative though marginally!
Nifty daily chart:

Nifty 60 mins chart:
Wave Analysis:

In previous update we mentioned that, “In short, next 2 to 3 days of price action will be very important and close below 6120 followed by 6040 will be bearish. We are yet to get any confirmation from broader market which will be extremely important for trend reversal. So wait either 6220 to break on upside for minor positivity or 6120 to break on downside on closing basis for negative confirmation.”

Nifty opened minor negative but rallied quickly breaking above the previous high and touched 6150 levels on upside. The volatility seems to be increasing again atleast on intraday basis and prices quickly fell back towards 6150 thereby covering a total of 100 points from top to bottom. This simply represents anxiety by traders at higher levels and is indicating weakness in current uptrend.

The outperforming sector – IT has started showing weakness and stocks like TCS, Wipro has showed good retracement from higher levels. Other sectors like Pharma and FMCG has started moving sideways during this period.

On RSI strong negative divergence can be seen on hourly chart and daily RSI is failing to cross above 70 levels. Moving average difference indicator is showing negative divergences as well. So it seems market is losing momentum with every uptick and for it to cross above 6300 looks unlikely with such weak momentum. However, as the current pattern can be a Wedge shaped (Ending diagonal pattern) there is a possibility of slow corrective rise. Such wedge pattern was last seen on upside during January 2013 when RSI showed 4 strong negative divergences and finally market topped out near 6210 levels. The current formation is seen on hourly scale whereas January 2013 was on daily scale and so the post pattern implication cannot be compared with that. Nevertheless, it is a short term bearish pattern.
As shown on 60 mins chart, wave v is ongoing so far and a close below 6120 will be confirming that short term reversal is in place. Further move below 6040 will provide 2nd negative confirmation.

In short, the daily close has been negative for consecutive 3rd day and move below 6040 will open up possibilities for 5700 on downside. The nature of this fall will provide further clues on bigger trend of the market. 

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