Monday, February 9, 2015

Selloff in Nifty continues even before Delhi Election exit polls - Impact on markets

Selloff in Nifty continues even before Delhi Election exit polls - Impact on markets!

Following is the research published today morning before equity markets opened by Waves Strategy Advisors. For subscription options visit

Nifty continued to move with high intraday volatility but managing to form lower highs and lower lows so far!

Nifty daily chart:


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Nifty 60 mins chart: Today morning before markets opened

Happened by closing -

Wave Analysis:

In previous update we mentioned that In short, trend for Nifty continues to be negative unless we see a close above prior bars high. Intraday volatility can now subside and a strong trending move is due to emerge. Decisive break below Bollinger band will provide strong negative confirmation.

In the morning research report we published the following and expected the down move to continue:

Nifty continued to form red bar throughout the week and closed at not only the days low but also weeks low. Infact, on the weekly basis we can see a very strong bearish Evening candlestick pattern. This is three candles pattern and usually indicates short term reversal especially when it occurs from the important Fibonacci and Channel resistance area. The reversal in last week happened from the channel resistance and the Target zone which we have been already expecting. This increases the significance of the Evening star pattern. This pattern will carry weightage on break below the low of the third candle which is at 8645. Again, this is on a weekly basis and so if the current week closes below 8645 i.e. by end of Friday it will confirm this bearish pattern further.

Now, Delhi Election exit polls are suggesting a clear victory by AAP party. This will become clearer tomorrow on the counting day but markets are going to discount it today in anticipation. This does not directly impact the ruling government BJP but the rally has been more driven by positive euphoria rather than rationality. Also the Banking stocks have already started taking a beating after a few banks reported poor than expected results both in Private sector and PSU space. Case in point is if the two major factors responsible for driving markets toward 9000 mark are changing then there has to be some impact and change in sentiments atleast over short term.

Now coming back to the Nifty hourly chart, we can clearly see that prices have so far not generated downside momentum but has closed below the previous wave x zone at 8695. Now the downside momentum should generate and trend can be very sharp. On upside 8760 which is near the 15 periods Exponential Moving average can be used as trailing stop preferably on closing basis given the sharp intraday volatility over past few days. Also event can result into rise in volatility and one should have the strategy ready before the market opens to avoid impulsive reaction.

A very important observation is that each of the up move post May 2014 after the Lok-Sabha elections has been retraced by 76.4%. This has been one of the major factors that has also indicated the up move is not strong but corrective wave and if the similar pattern is followed now as well then we should see a retracement towards 8220 8290 zone.

In short, we continue to think that prices are now in wave c or wave iii and trend will remain negative unless we see a close above 8760. Sharp move towards 8450 can be expected if this is indeed wave iii on downside which will also confirm a bigger degree top atleast for few months is formed!

Happened: Nifty moved sharply lower exactly as expected and continued the selloff. Prices have been moving down from the highs of 8996 exactly as we have been expecting in our daily research report.

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