Bottom Line: Nifty broke below the previous important low and closed deeply red. An important top might be in place!
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Nifty weekly chart:
Nifty daily chart:
Nifty 60 mins chart:
Nifty finally gave away the support zone of 7815 – 7840 and closed near 7748 levels. It had flat opening in morning and entered positive territory for a while amidst strong global selloff. Prices touched an intraday high of 7894 and moved in a narrow range until 1 pm. Post that as soon as 7840 level was broken the selling pressure started increasing and break below previous pivot low at 7796 resulted into severe selloff across the board. Midcap and Smallcap indices lost 2.4% and 2.7% during final hour of trading. The structure had been similar to that of US equity index – DJIA that started the fall in an overlapping fashion but later break of crucial support intensified the pressure. A similar possibility has now opened for Nifty as well.
Medium term outlook: Weekly Time cycles has worked perfectly so far that hinted towards October being a topping pattern and then the selling pressure to intensify. This time we are showing the weekly chart since 2008 onwards. As mentioned earlier the correction that started in 2008 is still not over and ongoing in the form of a running triangle pattern. A few stocks like DLF, IDBI, ADAG group, etc has retraced almost or entire of the up move prior to elections. This has further confirmed our corrective wave labeling on the upside which is difficult to digest for a normal technician. However, Elliott wave suggests that even when the index is at new high it can still be a part of correction due to irregular behavior or running correction. The overall pattern and wave characteristic takes precedence to that of the internal counts. Running triangle pattern clearly confirms this scenario with wave [D] probably complete at the high of 8160 and currently wave [E] has started. A monthly close below previous month’s low at 7840 (that is already broken for now) will be a strong negative confirmation. If after the Global odds prices still manage to cross back above 7970 then it will only indicate few more weeks of positivity before we top out. The medium term trend has already reversed or is very near to do so!
Short term outlook: A sideways and range bound action on Nifty over past few days had kept the structure and pattern difficult to predict. During such times use of crucial support and resistance levels is the key to get the confirmation for direction of breakout. Yesterday prices broke below the previous support zone of 7815 and closed deeply negative. This indicates a downside breakout. Also the positive divergence seen on hourly chart is no longer valid since prices did not confirm.
We will come out with downside projection once we see a follow-up negative weekly close that will further hint towards start of wave [E] on downside. Short term moving average has continued to stay below 20 days average and as long as we do not see a positive crossover bias will stay negative.
Volatility on a rise: Volatility has continued to increase and this can be just a beginning. During down moves we can expect sharp deviation of prices from the mean which is the primary reason for rise in volatility. One needs to stay in direction of trend which is down as of now in case a big trend emerges and follow trailing stop method.
Nifty hourly chart shows that the current down move can be wave c or wave iii with wave b ended as a running double correction in form of w-x-y (red). A close below yesterday’s low near 7730 will break the channel on downside whereas a close above 7850 will indicate completion of c near yesterday’s low. Short term pattern has continued to be challenging given the overlapping formation and one needs to use prudent risk management level unless a clear impulsive trend emerges. For existing shorts below 7790 level use 7850 as trailing stoploss.
In short, break below 7800 confirms the negative bias and follow-up move below 7730 can intensify the selling pressure similar to that of Global markets. The correlation will increase across the asset class and global equity markets and a repetition of 2008 cannot be ruled out. A monthly negative close below 7840 will add more weightage to this scenario! Stay alert and use prudent risk and money management strategies to make the most of the trend which might just be starting!!! Move back above 7850 will indicate a false break…
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