Nifty had shown a sharp sell-off in today’s trading session and also breached below the previous low of 8525.
The scenario was exactly opposite just few days back when prices rallied sharply from the lows of 8440 and gained nearly 160 points making a high of 8530. Post that there has been lot of positive news flow and majority expected that the subdued inflation data will force RBI to cut interest rates earlier than expected which will boost the equity markets. However, we refrain from commenting that a rate cut will necessarily result into positive close on markets. Infact, the top made in March 2015 at the high of 9119 was exactly on the rate cut day. Case in point: It is better to avoid basing the trading decisions on an event but rather applying the objective techniques.
Below research shows how we have combined Elliott wave along with Time cycles, Bollinger Bands, On Balance Volume (OBV), MACD indicators and majority of them pointing in the same direction. Nevertheless, Risk Management and Money Management also plays a very vital role in trading…
The below excerpt is picked up from “The Financial Waves short term update” daily research report published in morning of 20th August 2015 to paid clients.
Bottom Line: Nifty looks to be in final stages of completing the sideways action. A trending move is now due to emerge!
Nifty daily chart:
In previous update we mentioned that “On Balance Volume (OBV) which measures buying and selling pressure as a cumulative indicator. OBV was unable to take out the pivot high…. This suggests that up move is supported by weaker hands and current consolidation can be in form of distribution pattern”
Nifty has continued to move in lackluster fashion from last 3 days. In the last session prices moved lower till 8425 level however post that Nifty managed to recover and closed at 8495 levels. The important thing to note is that prices are failing to move above the high of 8530 made on 17th August 2015. The rise of 160 points on Monday was simply euphoric which is so far not supported by majority of the stocks that contributed during the fall. It is simply reflecting that the overall strength has failed to emerge after rise of just 1 day.
MACD indicator on the daily scale has continued to be in the sell mode. MACD line (red) has been taking resistance to the blue signal line which is the average of MACD. Each indicator has its own interpretation and during times when the direction is unclear it is prudent to applying different techniques and try to understand the direction that majority of indicators are suggesting. In previous update we mentioned about On Balance Volume (OBV) indicator which pointed towards distribution rather than accumulation. Even MACD continue to be in sell mode. A declining red line means short term moving average is approaching close to the longer moving average and a cross below 0 will give negative MA crossover.
Bollinger Bands: Nevertheless, price confirmation is going to be crucial and our expectations continue to be of downside breakout the confirmation of which will be on move below ………. This is also the lower end of the daily Bollinger Bands. The previous pivot low was also on this band. So a decisive break of this level will point towards strong trending move which is now due anytime soon!
As shown on hourly chart, (shown in actual research report published in morning) the previous pivot highs have been missed by 5 points consecutively for 3rd time. Also, prices formed lower high and lower low as per daily bar technique. Now a close below ……… will confirm short term downside reversal providing first negative confirmation. Second stage negative confirmation as per Advanced Elliott wave will be on faster move below ……… which will indicate that the upside correction from 7940 is complete and medium term downside trend has resumed.
In a nutshell, a trending move is now due to emerge……..Stay alert as Nifty can come out of Hibernation very soon!
Today’s movement so far is clear indication of how fast a trending move can emerge. Majority might be complacent during the sideways action whereas we expected a strong trending move to emerge. It is also important to know the Elliott wave counts to understand the probable turning areas and for risk management levels.