Bottom Line: Nifty consolidated after the sharp rise of Thursday post the rate cut announcement. Move above 8530 – 8550 is important for short term uptrend to continue.
The below research is published today morning in "The Financial Waves short term update". For subscription options visit www.wavesstrategy.com
Nifty daily chart:
Nifty 60 mins chart:
In previous update we mentioned that “In short, move above 8530-8550 will continue upside trend towards 8630 levels where earlier high is placed. One should use strict risk management level of 8380 just in case if the rise turns out to be simply euphoric.”
Nifty closed the euphoric week with a net gain of nearly 230 points on weekly basis. The entire strong gain came on a single day i.e. 15th January after the surprise rate cut announced by Mr. Rajan who has been known for surprises since September 2013 and this time it was no different. A strong Gap up move of nearly 140 points can result it catastrophe for short positions in futures. When trading in markets one should always keep leeway for events and should follow prudent money management strategies.
Now coming back to Nifty, the move on upside has kept the bias positive over short term. As long as the Gap created between 8300 and 8380 (low of Thursday) is unfilled the near term trend can continue on upside. However, decisive break of 8530 – 8550 is very crucial for positivity since this is the highs connected by previous two pivot highs shown on hourly scale.
As shown on daily chart, prices have managed to close above both 5 days and 20 days Exponential Moving average and the short term moving average (red) has moved above the 20 days EMA. This simple Moving average crossover system has worked very well even though it is delayed but gives good perspective on short term trend. So for reversal confirmation we have to see a decisive move below 8300 which will probably break both of these averages and will also fill the Big Gap created.
Warning signal: Even though the bar techniques are bullish one important parameter has reached near alarming levels - PCR ratio. This ratio has now reached towards 1.40 level. It has been many months since I have seen PCR ratio this high so many days prior to expiry. This does not indicate an immediate downside reversal but is associated with the risk element and suggests one to stay alert and leverage less on upside as sharp reversals cannot be ruled out.
From wave perspective, prices are currently moving in wave e of the expanding triangle pattern and close above 8530 – 8550 will open up possibilities towards new highs in this leg. As mentioned above use of risk management level near 8300 is very crucial in case of sudden reversal on downside.
In short, move above 8350 will continue near term positivity on Nifty over short term with 8380 – 8300 as important support area.
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