Indian Equity markets:Nifty oscillated within the range of 8450 and 8410 levels yesterday.
It seems the buying interest is waning out as even if index hits new highs the momentum is not increasing. Prices have continued to drift on upside rather than trend. Yesterday, stocks like RCOM,RCAP, LT that were looking weak showed strong upside move whereas defensive stocks from IT,Pharma closed negative. This type of rotational movement has helped index to hit new highs but failed to generate trending move. Also for a positional trader selecting the sector during such environment remains challenging. However, such price action cannot continue for long and eventually a trending move should start.
To understand if a trending move is due one can use Average Directional Index (ADX) indicator. The below chart is picked up from the morning research report “The Financial Waves short term update” published daily to subscribed clients before market opens. To subscribe this research report, visit http://www.wavesstrategy.com/index.php/store.html
Bottom Line: Nifty has been struggling to show momentum even on upside. It seems market is testing patience even for best of the traders!
Nifty daily chart:
In previous update we mentioned that “In short, as Nifty managed to take out previous week high the short term trend is positive. The next resistance level for Nifty is near 8490 on upside with pivot support at 8320 as move below it will also break the important ii-iv trendline.”
Applying Average Directional Index indicator (ADX) along with +DMI and –DMI.
We are showing Average Directional Index (ADX – black) along with +DMI (blue) and –DMI (red) indicator. This indicator represents if a trending move is due to start. The black line when moves above the 25 level normally results into trend. However, it does not signify the direction of trend i.e. upside or downside. For directional confirmation we need to see crossover between +DMI and -DMI. The best of the trend was seen in period March to June 2014 when black ADX line sharply moved higher. Post that the continuous fall in its level is an indication of consolidation and non trending moves. Price action reflects that post July even when Nifty is moving higher it has been intermittently stopped by reactions retracing the up move by nearly 61.8% to 80%. ADX line is now showing some up move and this can indicate that a trending move is due to start.If a red line manages to cross above the blue line the trend will start in downside direction whereas if blue line reverses back above previous high of 42 the breakout will be on upside.
Combining ADXwith other techniques of Channels, Time cycles, and Elliott wave counts our expectations is …….. trend to emerge. However, it is prudent to keep a tab on this indicator to get confirmation along with price reversal. An indicator will be useful only if prices confirm the breakout direction.
In short, looking at ADX we can conclude that the trending move is due to start. Short term wave counts are suggesting prices are in final wave ……… and the direction of breakout can be on ………. But it is prudent to wait for confirmation below the level of …...
We have been mentioning again it is time to stay alert rather than complacent and laid back. This sideways action is going to last for long and a trend is going to emerge soon. Many of the indicators and advanced technical analysis techniques are getting synchronized after many months. To know the direction of breakout and why volatility is about to increase subscribe to “The Financial Waves short term update” and get instant access to the research report with stocks and Nifty from short to medium term direction with crucial support and resistance levels. For subscription visit http://www.wavesstrategy.com/index.php/store.html