Bottom Line: Nifty continues to trade near the important red channel support as shown in 60 mins chart. Next few days of price action will be crucial now.
Nifty daily chart:
Nifty 60 mins chart:
In the last update we mentioned that, “due to sharp rise followed by sharp fall we have applied Bollinger Bands which is contracting as of now. Prices are trading near the support of lower Bollinger Bands as well as the zone of channel support. Only decisive move below 7540 will indicate that downtrend is extending further.”
Last trading session was highly volatile where Nifty had Gap down opening at 7550 level but managed to protect important support of 7540 and showed recovery on upside towards 7650 levels immediately. The most awaited US Federal reserve’s meeting is scheduled on 15-16 December and it is expected that US will raise key policy rates in almost a decade. It is going to be an interesting event and the way global markets will react over short term. Few weeks back when FED chairman Yellen announced most likely hike in December US equity market – DJIA was up by more than 300 points on same day. It is tricky to gauge equity markets reaction to the news but better to understand that markets will eventually do what it has to irrespective of the event.
Case in point: It is going to be a volatile week and we think FED will be increasing interest rates this time. The reaction can be positive but we will let market decide where it wants to head. The Global markets are going to react atleast during opening session in similar fashion to that of US equity markets with a big Gap. So trade light and close over next two days is going to be crucial. Nifty is also near the crucial 7540 level of previous low made in September which it protected yesterday.
From sector perspective, Bank Nifty which was the major loser in Friday’s trading session managed to trade in a range but buying is still not witnessed in Banking stocks which is little concerning. Midcap and Smallcap indices closed in the green territory.
Now as per Elliott wave pattern Nifty is moving in second correction post wave x as shown on daily chart post completion of which we should see break above the channel. However, the fall has been in complex pattern and it will be only above 7800 we will get break above the channel providing first positive confirmation and faster retracement above 7985 will provide second stage positive confirmation that medium term trend has reversed on upside. This method is known as 2 stage confirmation as per Neo wave which virtually confirms a strong reversal over medium term.
Now coming to short term we can see some buying emerging from lower levels near the channel and Bollinger Bands support as shown on 60 mins chart. The internal structure is not clear and it is crucial to see break above 7770 or below 7540 for a clear trend to emerge.
In short, expect Nifty to trade in a range between 7540 and 7770 over short term. Break of these levels will result into trending move in that direction. We are keeping a close watch on Banking index as it has still not showed any positive signs and of course even on FED meeting outcome which will drive global markets atleast over short term.
The above strategies are mentioned in our daily research report “The Financial Waves Trading update” that covers in-depth analysis on Nifty using Elliott wave and trading strategy. In case you would like to know the trend for stocks as well subscribe now to “The Financial Waves short term update” that covers Nifty and stocks outlook.