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Bottom Line: Nifty had a sharp fall below 7580 level in last day of the week. The trend reversal confirmation will be obtained only on lower high and lower low formation.
Nifty daily chart:
Nifty 60 mins chart:
Elliott Wave Analysis:
On Friday, Nifty traded in a narrow range during the opening hours but selling pressure started to build up post 12 pm. The breadth slowly started deteriorating and as soon as 7580 level was broken there was sharp selloff across the board with prices making a low of 7525 during the day.
On weekly basis, Nifty has still managed to form a higher high low bar which will keep the medium term trend positive as of now. A close below 7500 by end of current week will indicate a reversal.
Looking at the options, there is highest Call OI buildup at 7800 levels and highest Put OI buildup at 7500 levels. So this can be the ideal range between which we should see the movement. Nifty closed very near to the lower end of the range at 7542. Move back above 7600 can generate buying interest but protecting 7500 on downside will be very crucial.
The Time cycle of 49 days is due today and it is unclear if this cycle has already formed a top now on Friday or will form a bottom. A sharp reversal from here will indicate bottom formation whereas continued selling pressure and a clear lower high and lower low formation will indicate a top is formed.
Nifty has now broken below the short term blue channel but at the same time RSI has arrived near the support of 30. So even if the downtrend has to continue short term pull back cannot be ruled out. A lower high and lower low formation on hourly chart is an ideal scenario to confirm trend reversal. So far by break of channel and 7580 level prices have formed lower low but has not yet formed lower highs a precursor for trend reversal. We have seen before as well that break of channel has failed to generate selling pressure unless a lower high is formed. So if prices show temporary upside pull back and does not move above last week’s high followed by break below 7500 it will give an ideal trend reversal confirmation.
In short, next 2 to 3 days will be important. A reversal back above 7650 will resume the uptrend whereas break below 7500 which is also the previous Gap area can keep the short term trend negative but as indicators are in oversold state some relief rally is plausible.
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