Monday, December 15, 2014

Nifty reversed exactly as expected from channel resistance. An Elliott wave perspective!

Nifty showed strong reversal exactly from the channel resistance we have been showing for many months! Short term moving averages are decisively broken!
Nifty daily chart:

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Nifty 60 mins chart:

Wave Analysis:

Nifty formed a strong reversal bar in previous week and broke the important support levels of 8430 and even 8290. It seems the strong uptrend has terminated after forming an Ending diagonal pattern at the top of 8627 which was with an exhaustion gap. The same day itself we mentioned about a “key reversal day” possibility and Nifty has continued to move sharply lower after that. 

In the recent monthly update itself we have shown medium term time cycles and highlighted how the current uptrend has been a “risky affair” for fresh longs to be entered along with key focus on commodity and commodity related stocks that can be worse hit during the down fall. In past few days of selloff Metals have continued to be one of the strong underperformers.

On a weekly basis, prices have made Evening star pattern which is a classic reversal pattern as per candlestick technique. One single weekly bar has retraced prior 5 weekly bars completely. This is also one of the strongest negative weekly bar from prior week’s high since the rally started from 5118 in August 2013. The reason for emphasizing on the weekly bar intensity is to highlight the magnitude of reversal even when interest sensitive sectors like Banking has managed to show resilience!

From sectors perspective, apart from Pharma, all the sectors closed in red territory. Bank nifty is moving in sideways action post the selloff from 18880 to 18180. Now, move below 18180 will make lower high lower lows formation and suggest that top has been made in Bank Nifty. On upside 18600 will act as an important resistance where 61.8% retracement of the prior fall is placed. In the evening of Friday IIP data for the month of October and CPI data for the month of November has been released. IIP for the month of October has slipped to 3 years low of -4.2 % against expectation of 2.1%. Whereas CPI has cooled to 4.3 % against the expectation of 4.4%.  Now, looking at the price structure of Nifty there is high likelihood that market will react negatively and current downtrend will continue further.

As shown in daily chart, we continue to think that important top has been made at the level of 8627 levels as post that prices have been showing impulsive down move. As per wave perspective, there is high probability that intermediate wave z of Complex correction pattern which started in the month of August 2014 is complete at 8627 levels and next leg on downside from medium term perspective has started. Prices continue to follow bar technique very well and not taking out the high of prior bar. As long as this structure remains intact trend will remain bearish.

It is prudent to avoid catching a low in the current fall and we have seen the waves extended during the fall of Crude.Existing short positions should follow trailing stop method and avoid catching a low in this impulsive down move. Use 8350 as crucial risk management level.

In short, the trend will remain negative as long as 8350 is protected on upside. Move below 61.8% of the prior up move which is near 8080 is going to be crucial to further confirm start of a higher degree downtrend!

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