Friday, July 11, 2014

Nifty and Budget! What is next?

The below research is picked up from the morning report "The Financial Waves short term update" for more details visit 

Bottom Line: Nifty indeed kept the traders on pressure cooker till closing. Finally even the best of the Budgets failed to produce desired impact on index!

Nifty daily chart:


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Nifty 60 mins chart:  
 Wave Analysis:

In previous update we mentioned that “Today is the Budget day and volatility will be high. Closing will be crucial and looking at the overall pattern and counts we are expecting a downside move today of anywhere near 3% looks possible! In short, the trend continues to be negative and if we are looking at the pattern correctly the selloff will intensify from here. Use 7720 as crucial stop level for short positions and preferably on closing basis due to event.”

The movement of Indian equity markets indeed kept all the traders on pressure cooker whether on long or short side until closing. Nifty traded in narrow range till 11.30 and market reacted negatively during 1st part of the Budget. It was later after the announcement of Direct and Indirect taxes and road map shown to cut down Fiscal deficit that Nifty showed a strong move from the lows of 7480 to the high of 7730. The twist in the trend happened exactly at crucial levels near 7500 on downside and near 7720 levels on upside. Bank Nifty as expected was most sensitive to the budgetary speech but closed negative by more than half a percent. The only sector that sustained with strong gains was real estate stocks after the REITs announcement. In totality, it seems the event produced strong spikes on intraday basis but Nifty finally resumed its short term downtrend. Also as expected the difference between high and low has been nearly 3.30% which we very clearly mentioned in our detailed update on Budget in current Monthly research report published on 3rd July. 

A close observation shows that yesterday’s movement was very similar to that of the Budget day movement of 16th March 2012 where the top was formed 2 days back and there was a strong spike on upside but Nifty finally closed in red. On next day the selling pressure continued. If we are linking the current pattern correctly to that of Budget day movement in March 2012 then the downtrend should continue today as well.

As shown on daily chart, Nifty formed an outside bar which does not change the short term trend and keep it negative as long as close above the previous day’s high is not seen. Volatility can continue even today and we expect 7500 to eventually fail to provide any support. Trading intraday on events like this can be both financially and mentally exhausting if caught on the wrong side of the trend exactly at the wrong time. We therefore prefer using closing levels on events day.

It seems that an important top is in place at 7800 level and this level should remain intact atleast till 25th July or end of the month. Prices are now moving down in the form of a-b-c correction and wave b got completed near yesterday’s high at 7730. As long as the short term red channel shown on 60 mins chart is intact the trend will continue on downside. The probable target once 7500 breaks is towards 7250 levels. 

Infosys result due today will result into further volatility during the day. The stock showed down move and made a low exactly on channel support near 3250. Break below this level can result into sharp move towards 3050 whereas any move back above high of 3380 will keep the positive outlook intact. The negative bar created yesterday has raised some doubts on the internal strength of this stock and on the validity of Head & Shoulder pattern. Nevertheless, break of 3380 will be strongly positive. But for now it is better to wait for either of the levels to break for clarity!

In short, the roller coaster ride of yesterday produced intraday swings of nearly 545 points - enough to raise pressure of even the most conservative trader!!! For Nifty, there is no change in our outlook that the trend remains negative and existing shorts can now use 7700 level as stoploss. Break of 7500 will be crucial and selling pressure will intensify taking index towards 7250 support zone! If our wedge assumption is correct we should see intensity in selling pressure after some consolidation.Also if a strong positive Budget cannot drive the uptrend I am not sure what will result into upside reversal now! 

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