Tuesday, January 5, 2016

Nifty in final leg of down move before the reversal in trend!

Bottom Line: Nifty failed to break 7980 level and reversed on downside sharply losing 170 points. Trend is negative in final leg on downside in form of wave c.

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:
In the previous update we mentioned that, “Nifty has reached towards inflexion point. Move above 7980 is required to continue the positive trend along with sustainability above 7890 followed by 7835 levels.”

In the last trading session, Nifty had Gap down opening at 7924 level and then selling pressure continued throughout the day. Nifty broke 7890 followed by 7835 level in single trading session only which indicates that trend has reversed on downside.

The selloff was not limited to only Indian markets but has been a global phenomenon. Trading on Chinese index – Shanghai Composite was halted after it crashed by 7%. However, this index is still well above its low made in September 2015. It will be interesting to see if that level is protected while sentiments turn bearish. Next few days of action is going to be crucial.

From last 2 weeks we were citing 7980 as important level. Due to the slower nature of rally we mentioned very early that one leg on downside looks pending. Prices respected our mentioned level and reversed on downside losing 170 points. Such big fall is witnessed after 3 months. Prices have taken out last 7 days prior bar in single day only which indicates weakness over near term.

From sector perspective, carnage was witnessed across the board where Bank Nifty erased the entire gains of Friday’s session and lost more than 2.5%. Along with that Midcap and Smallcap too came under pressure and closed on the negative note with 1.35% and 1.19% respectively. Not a single sector managed to close in green territory. Such synchronized selloff indicates weakness as of now.

As shown in 60 mins chart, post breaking the upward moving black channel, prices did not look back and continued to move lower till the end of session. This down move has retraced the last segment of up move in faster time and has taken out the pivot lows of 7890 followed by 7835 level. So on upside as long as 7890 (as per polarity reversal) followed by 7940 is intact on upside any rallies will be short lived.

As per wave perspective, we have been mentioning the current up move as only wave b of (z) and now wave c of the ongoing Flat correction pattern has started on downside. If this is last stages of selling then the pressure should reduce after 3 days and 7600 – 7650 can act as short term support. In case the fall extends even beyond this range then more bearish stand would be warranted.

In a nutshell, Nifty trend has reversed on downside. One should avoid catching low as of now. 7890 followed by 7940 level will act as resistance and prices can move towards 7650 levels.

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