Wednesday, September 30, 2015

Nifty short to long term forecasts using Elliott wave, Channels, Indicators and much more...

Bottom Line: At times it is important to look at the bigger picture to understand the overall direction.

The below research is picked up from "The Financial Waves short term update" by Waves Strategy Advisors published on morning of 28th September 2015 even before RBI monetary policy.

Nifty weekly chart:

Nifty weekly chart:

Nifty daily chart:

Nifty 60 mins chart:            

Wave analysis:
In the last update we mentioned that, Today being expiry volatility cannot be ruled out and one has to keep an eye on 7910 followed by 8000 on upside and 7720 level on downside. Decisive break below 7720 will resume down move towards 7600 whereas any move above 7910 followed by 8000 will indicate deeper upside pullback.

Nifty continued to move in a range with no clear trend. Prices opened in red made a low near 7800 but later managed to close positive near 7870. There was only one day of down move 22nd September and post that we are seeing positive attempts. This is keeping the overall trend sideways for now.

At times it is important to look at the bigger degree charts to understand the overall trend. The fist weekly chart of Nifty shows the contracting running triangle formation. Yes, we are not looking at the overall up move of 2013-2014 as impulsive that many of the Elliotticians might be assuming. Many of the stocks that rose in 2014 have corrected back to the levels or lower from where the rally started. Also there is no strong internal clear subdivisions in 5 waves which is a necessity rule for any impulse pattern. Wave characteristics are in more sync with the triangular activity as shown on the first chart. As per these wave counts prices are now in primary wave [E] and so medium term trend is down for next few months. It is only on completion of this primary wave that the next big BULL TREND will start. We will highlight it here as and when we get the confirmations of the start of next bigger degree uptrend post wave [E] is over.

Now looking at the second weekly chart we can see, in the month of August 2015, sharp fall from 8530 to 7540 level which is nearly 1000 points in this primary wave [E]. Prices are moving in corrective red channel and have bounces back from the lower end of the channel. The Flat correction a-b-c is complete and we are currently in wave x which is retracing this pattern on upside. The channel resistance is now near 8330 on upside. As the line of least resistance is on downside more leverage shall be done during downtrend whereas position sizing and crucial stoploss levels should be maintained for long positions. In a nutshell, we are currently in wave x that looks to be forming a complex pattern and so short term trading might be little difficult. Nevertheless, let us look at the short term charts to understand the key levels for initiating trades.

Looking at the hourly chart, a sharp down move is followed by upside retracement and during such scenarios Bollinger Bands® will provide important support and resistance. As per this support is now at 7720 and resistance is at 7990. A close above or below these levels will result into short term trending move. Looking at the overall structure and failure of prices to generate downside momentum for more than 2 days we think there can be an upside breakout.

Pattern recognition: The daily chart shows a very similar pattern that is currently in formation in the past as well. Similar pattern looking like inverse Head & Shoulder was seen during the low of 5118 in August 2013, later during January 2015, June 2015 and now in current zone. All of these patterns in the past gave positive breakout for a move of around 400 points or more on upside. Projecting an upside move from current levels give us the upside level at 8300 which is exactly at the channel resistance.

In a nutshell, the current trend for Nifty is sideways with crucial support at 7720 and resistance at 7990. A decisive close above this level will result into a sharp move towards 8300 levels on upside. Failure of prices to correct by more than 1 day has been suggesting that one upside pullback is possible before the medium term downtrend can resume. Also RBI might cut interest rates by 25 bps given the weakness in equity markets as mentioned earlier. They might surprise by tweaking other policy rates as well. However, Mr. Rajan is much more unpredictable that markets and one should not try hard to forecast what stand he will take! 

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