Bottom Line: Nifty, Sensex, DJIA (USA), S&P 500 (USA) – touched life time highs. BOJ announced unexpected increase in its bond buying program at unprecedented levels!
The below research is picked up from "The Financial Waves short term update" by Waves Strategy Advisors. For subscription to this daily research visit http://www.wavesstrategy.com/index.php/store.html
Nifty daily chart: showing Hurst Time cycles with Neo wave counts
Hurst Time cycle Analysis:
In today’s update we are showing the complex Time and Price forecasting method that helps us to understand the overall maturity of trend from both Time and Price perspectives.
On Friday, the strong rally was seen not only in Indian equity markets but across the globe after Bank of Japan unexpectedly announced increase in their Bond buying program. On one hand US has reduced its monetary easing program whereas on other Japan has increased annual target for enlarging the monetary base to 80 trillion yen ($724 billion), up from 60 to 70 trillion yen. This will lead to printing of Yen at unprecedented levels resulting into sharp depreciation in JPY against USD which is now quoting near 112 from 78 (seen in 2013). Nikkei 225 (Tokyo index) was up by 4.83% (755 points) a huge gain for an equity market of a developed economy.
Now let us look at Nifty from Time cycle perspective:
Hurst Time cycles: are shown on the daily chart that highlights the probable turning junctures. Cycles help us to capture the Time element whereas Neo wave & Elliott wave helps us to understand the Price projections. At times when prices are moving in complex corrections projecting price with high degree of accuracy is a challenge.
J. M. Hurst developed the concept of standard cycles that work across the market at all the times. There are a set of standard cycles that we have to look at which will help us understand the crucial lows. Cycle lows are synchronous whereas tops are dispersed. So we need to use this technique to understand crucial tops only with caution.
The daily chart shows application of 108 days cycle, 54 days cycle (black), 28 days cycle (red) and at the lower section each of the subsequent cycle lows are highlighted by star mark.
Now the above chart highlights that prices are in second half of the 108 days cycle which means that this cycle is due for a top. The reason for still seeing an uptrend is that within this 108 days cycle the 54 days cycle made its low on 17th October and is now only 8 days old. An ideal top should be formed near 20 to 25 days of this cycle since 108 days top has already passed out. This gives a probable time frame as latest by third week of November for crucial top. The cycle top has shifted from October to November given the number of holidays we encountered in October and the entire calculation is based on trading days.
Projecting Time using Neo wave: One very important pattern described in Neo wave (Advanced Elliott wave) is Diametric pattern. This pattern consists of seven corrective legs (labeled from a to g) and each leg tends to follow equality in terms of price and / or time. The blue box shown on daily chart shows except the first leg that was driven largely by election event, each of the up leg has been tending towards equality in terms of price and time. This when combined with the crucial red channel coincides with the upside range for the current rally as 8350 to 8420. Prices are now in the 7th leg i.e. wave g of the pattern and should follow the probable path shown above.
Please note this path is based on the assumption of the ongoing diametric pattern. In case we continue to see strong positive bars even in current week then chances of this pattern forming might reduce. Nevertheless, time cycle is also suggesting that the 108 days cycle has entered into its second phase that should be associated with loss of momentum.
Based on the above techniques along with channels we continue to believe that the medium term trend is in matured stage. However, over short term there is no reversal bar so far with each bar closing above previous high and so the trend will continue to be positive.
Existing longs should follow trailing stop method and now use Friday’s low at 8198 as stoploss. It is prudent to avoid catching a top here since daily momentum is strong so far.
In a nutshell, the probable path is as shown based on Neo wave and Hurst Time cycles but it is prudent to stay in direction of the trend which is currently positive and use 8198 as stop level. On upside, 8350 to 8420 is the next resistance range!
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