Wednesday, December 3, 2014

Nifty: Money Flow index warning sign! Price confirmation still awaited!

Bottom Line: Mr. Rajan continued to surprise the Bond traders by keeping rates unchanged despite Bond yields easing!

Nifty daily chart:

 Nifty 60 mins chart:
Wave Analysis:
Mr. Rajan continued to act stringent to curb inflation despite the peer pressure and kept the key rates unchanged. The bond trader was caught off guard as the easing bond yields did not help in rate cuts. Since Mr. Rajan has taken over the bond traders are continued to be surprised. Trust me once we see fall in equity prices, RBI will be forced to take steps cutting down interest rates. As falling equity prices is a mirror of how economy is going to perform few months down the line. Looking at current scenario there is a possibility of first rate cut to happen in February 2015.

As soon as the policy decision was announced, Nifty entered into green territory atleast momentarily. This only showed markets have been waiting for news irrespective whether there will be rate cut or not. The index made a low of 8504 and traded in the range of 8540 and 8510 for most part of the day.

An interesting observation is that during the entire up trend from 7723 to recent highs there have been maximum of 2 consecutive red bars formation. Infact, in the entire up move from 5960 made in February there has been only a few times when there were consecutive 3 red bars and each time this resulted into increase volatility or deeper retracement either in terms of price or time. So far prices have formed 2 red bars and it will be crucial to observe whether Nifty can manage to close above previous close today or not.

Money Flow index measures volume along with price momentum. It indicates if money is flowing in or out of the index. It essentially a volume weighted momentum indicator. As can be seen on daily chart there is a strong negative divergence when this indicator is making a lower low against prices making new highs. We have highlighted previous such instances that resulted into atleast temporary halt in uptrend if not a strong downside correction. A break below 8460 is important for deeper downside retracement. However, it will be crucial to watch the 30 levels on Money flow index since everytime it reached there, prices bounced back on upside. First thing first, it will be crucial to observe if Nifty can manage to protect the level of 8460 and bounces back on upside in form of wave (v) of v of c. This wave counts will remain valid as long as 8670 is not taken out on upside else we will be forced to end wave (ii) of v at yesterday’s low in form of irregular Flat correction.

In short, Nifty has continued to trade in a challenging environment and no clear trending direction. Move below 8460 followed by 8430 will be bearish whereas close above 8560 is necessary for positive trend to resume!

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