Nifty continues to struggle near important channel intersection!

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Nifty continued to face resistance near 6560 area. The short term movement continued to be in the range of Bollinger Bands.

Nifty daily chart 1:

Nifty 1^st daily chart shows the importance of channel and why it is important to rely on this basic technique when wave counts are not clear. As we can see the channel is very well working since January 2012 and prices are now very close to the upper end of the channel. The problem of using channeling technique alone is that prices can keep on drifting higher along with trendline of the channel as period of Jan 2013 shows (highlighted). So we have to combine this technique along with an indicator – Moving average difference which has been working very well. A close observation shows that this indicator has been turning down everytime it touches 200 levels. This has happened 4 times since 2011 and this will be 5^th time if it turns down again. However, one subtle behavior is that after the indicator turns down prices move back to test the recent highs but indicator forms lower highs. This gives a classical negative divergence which might not be visible on RSI or ROC. Minor blue lines on indicator reflect that. The basic assumption of technical analysis is what worked in past should work now as well. Based on that premise we think some pull back in prices is plausible towards 6450 or near 6420 but then a retest of recent highs should result into negative divergence on this indicator.

The first chart is a clear indication of why we did not turn bullish even when the new highs are made. I distinctly remember the scenario of January 2013 when a similar euphoria was seen as Nifty approached 6100. The difference being the short term pattern (wedge) was very clear then but in current scenario it is an exponential rise. Such patterns normally end with negative divergence on indicator and let us see if the same happens now as well.

Alternative scenario: We will adopt alternative scenario only once Nifty breaks above 6620 level but provided the Moving average difference breaks above 200 very decisively. Also many stocks ICICI Bank, Reliance Industries, Hindalco, reacted exactly from the resistance level mentioned in previous updates. So a true breakout happens only when everything happens in synchronization and trust me markets do not move randomly but in extremely locked step fashion. It is us who should have the capability to cope up with the market dynamics.

On 18th March morning research report - The Financial Waves short term update we mentioned the following:

The upper end of the Bollinger Bands(C) is now near 6580 level which should now be an important level to watch. This also sounds logical. Since 6562 level is tested 3 times I think it will lose its importance now and prices will probably whipsaw it by moving higher towards 6580 as per upper end of Bollinger Bands. 

Happened: On 18th March itself Nifty moved past 6562 and made an intraday high near 6575 levels and reversed back lower.

In addition to above chart the daily research shows Nifty intraday as well as daily chart with Elliott wave counts, Time cycles, RSI, Option indicators, etc. For subscription visit http://www.wavesstrategy.com/index.php/store.html and select "The Financial Waves short term update". For more details write on helpdesk@wavesstrategy.com or call on +91 22 28831358