Wednesday, August 13, 2014

Is Nifty due for a strong up move despite poor IIP & CPI data?

Bottom Line: Nifty had another Gap up opening and managed to cross above 7710 level. Further move above 7750 to confirm start of next leg on upside!

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Nifty daily chart: 

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Nifty 60 mins chart:    
Wave Analysis:

In previous update we mentioned that “The entire move on downside from the high of 7840 is enclosed within the red channel and close above 7710 will be first sign of positive reversal which will break the previous pivot high and also the downward sloping channel… In short, above 7635 the current up move can continue towards 7680 levels. For further positivity strong break above 7710 followed by 7750 will be important.”

For consecutive second day, Nifty had a Gap up opening of nearly 30 points and managed to sustain the Gap throughout the day. The action was similar to that of Monday’s movement but prices managed to generate momentum post 2 pm and closed above 7710 level. The strong move broke 7710 level decisively and also the downward sloping red channel. This increases the odds that the entire correction that started from 7808 levels on 8th July 2014 is probably complete and next uptrend has started. However, further move above 7750 will be important to confirm this scenario.

An interesting thing to observe is that the entire up move from 7422 towards 7840 did not produce any sustainable Gaps and currently we have observed 2 consecutive Gap up which has remained unfilled. If the Gap area created yesterday between 7625 and 7655 remains open even today and prices later manages to cross above 7750 it will indicate that wave c of the Irregular Flat correction is complete and the next wave on upside has started.

As shown on 60 mins chart, the down move in form of wave c is Ending diagonal pattern as discussed before. Yesterday’s sharp reversal has opened the possibility that wave e is complete at the lows of 7600 on 11th August itself. This makes wave e small in terms of price compared to other legs but from time perspective it has still consumed 5 hours. If I remember correctly such similar action was last seen during the up move of January 2012 where the previous leg ended in Ending diagonal pattern with wave e truncating in exactly similar fashion. It was however on a daily degree but we are seeing this on hourly degree currently. The post pattern implication at that time was the high exceeded by the factor of 23.6% of the prior down leg and if current leg indeed behaves in similar fashion then the high of immediate preceding leg at 7840 should be breached and we can reach atleast towards 7910 levels. However, for now move above 7750 will be very crucial and on downside yesterday’s Gap between 7625 and 7655 should be protected.

The poor IIP data and higher than expected CPI data can result into short term down move but it will be crucial to observe if by closing market can manage to move above 7750 levels. Also these data are for the past and equity markets are discounting the future. Let us see if this news can result into temporary correction else deeper retracement below 7655 will force us to change the wave structure.

In short, further move above 7750 level will confirm the start of next leg on upside with 7650 acting as important support. On downside the Gap area of yesterday between 7655 and 7625 should be protected for positivity of past 2 days to continue.

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