Wednesday, May 13, 2015

Nifty sharp reversals: Is it predictable using Technical analysis? Reading RSI indicator during corrections

Bottom Line: Nifty continued to move in an environment which is not conducive for positional trading. Wait for range to break for clear trending move to emerge!

Nifty daily chart:

Nifty 60 mins chart:

Wave Analysis:

In previous update we mentioned that In short, trading this upside correction can be challenging as the pattern of this up move is not clear so far and there is no higher high and higher low formation. Using the bar technique the trend is positive but give leeway as this up move can be interrupted by sharp reversals!

Nifty continued to move in a high volatile environment with no clear trending direction. We have been accurate in pointing out that the up move will be interrupted by sharp reversals which happened yesterday. After a strong move from 7997 to 8332 levels, Nifty gave away nearly 200 points of gain in just single day. Infact, this move happened on the very next day after a strong rally of 140 points just a day before. Such sharp reversals on either side makes the trading environment challenging. But this has to be expected after a good trending move especially when we think that medium term downtrend has started.

For a clear direction to emerge we have to see a decisive break either above 8335 or below 8000 levels. This is a big range but prices can oscillate within this. Today we can expect minor Gap up opening after a strong down move of yesterday to make it more difficult.

As highlighted earlier it is better to stay with the downtrend as the 108 days cycle has entered into the maximum acceleration zone. We are not going to buy in any rally unless and until the time cycle low is formed by third week of June.

As shown on hourly chart, currently wave x is ongoing which is internally subdividing into waves a-b-c. This can result into one minor push on upside back towards the trendline resistance at 8270 post which downtrend will resume. This minor push is not necessary.

In short, after a sharp up down move there is possibility that we can see some consolidation and range bound action before a trending move can emerge. Today we can expect a Gap up move after strong selloff seen yesterday. This probable path is as shown and any pull back on upside might not last for more than 2 days. Trade cautiously unless a clear trend emerges from here on.

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