Friday, October 10, 2014

Nifty volatility on a rise, Time to sit tight and look at crucial levels!

Bottom Line: Nifty showed sharp reversal yesterday and touched intraday high 7972. Close above this level will indicate one final push on upside before we top out!

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Nifty daily chart: 


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Nifty 60 mins chart:    

Wave Analysis:

Nifty had a Gap up opening near 7887 and sustained it throughout the day. This has happened after prices whipsawed around 7840 level but managed to close above it. Such scenarios at times can be challenging from trading perspective and so closing basis movement becomes important. We also published an interim update yesterday around 2.00 pm indicating that the one final push on upside is probably pending given the fact that index managed to sustain the morning Gap and the participation was seen across the board.

As shown on daily chart, prices are now exactly at the blue Moving average and a close above this average followed by break of 8030 will be an indication that the upward intermediate c wave is ongoing and the low made at 7816 was only wave b. Topping patterns are made on hopes and bottoming patterns are made on fear or panic. It takes time for hopes to dissipate and so it becomes difficult to identify patterns near important tops. It is therefore difficult to conclude with high probability that wave c of third standard correction on upside is complete or it is still ongoing. For important tops to be in place we should see sharp reversals on downside. Nifty retraced most of the prior down leg in single day and thereby failed to show sharp down move. Going by this logic it means that one final push on upside might be pending. However, it will be very crucial to see a close above 7970 levels followed by break of 8030 to confirm this scenario.

As shown on 60 mins chart, the move on downside is not impulsive and has happened in overlapping fashion indicating a-b-c correction instead of impulsive move. Prices have now closed exactly on channel resistance near 7970. For uptrend to resume close above this level will be crucial. As the participation was seen across the board but it will be too soon to conclude that the uptrend has again resumed by looking at just one day of rally. Let us see if the positivity continues in broader market even today or tomorrow for confirmation.

In short, a move back below 7840 will indicate that the complex correction on downside is still ongoing whereas close above 7970 will confirm one final push on upside is pending. It is better to wait for prices to confirm in which direction it wants to head before making a conclusive stand on wave structure!  

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