Thursday, April 28, 2016

Nifty: Application of ADX indicator, Andrew Pitchfork, Channels, Moving average difference

Bottom Line: Nifty moved in a narrow range in yesterday’s session. Short term trend will continue to be positive with 7820 as important support. 

Nifty daily chart:

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:

In previous update we mentioned that “Close above 8000 will result into positive trend towards the channel resistance placed near 8150 - 8200 levels with yesterday’s low near 7820 as an important support”

Nifty did hit new high for 2016 by touching 7991 levels on intraday basis. The movement continued in stock specific manner with Banking index that was leading the way up showing some correction in previous session.

During such times it is important to apply different techniques and see if momentum is building up or not for much higher levels. The first daily chart of Nifty shows modified blue channel which is connected from the unorthodox top given the fact that correction on downside as per the wave theory started from that truncated high made in April 2015 at 8845. The next resistance zone as per this channel is now near 8150 levels.

Also, Moving average difference indicator shown below is now at a difference of 150. The strongest of the momentum was seen on 28th January 2015 with MA difference value of 270. It will be only on decisive break above 8150 followed by reading of 270 on MA difference indicator that will indicate the index is indeed headed towards much higher levels even if it is in corrective fashion.

ADX Indicator: This indicator measures if a trending move is about to emerge. We can see that the value of this indicator continued to move lower during the entire uptrend until recently. A sharp fall followed by a rise results into a non trending move over medium term and so we are seeing such lower value on ADX. A continuous rise on Nifty above 8150 will probably break the value of 25 – 30 which normally signals a trending move.

Andrew’s Pitchfork: A very important channeling technique that plots the channel based on standard deviation and mean trend is shown in red color. The entire up move is contained within this red channel. Break below 7820 will break the lower trendline and provide first negative confirmation. But as long as this level is intact short term trend will continue to be positive and move above 8000 will provide further confirmation.

Over short term, as shown on daily chart, it is not clear if wave (b) is indeed over or not. Today being the expiry volatility around this psychological level cannot be ruled out. Decisive move above 8000 can result into short covering that can drive the trend towards the channel resistance again placed near 8150 – 8200 zone.

In a nutshell, all of the above indicators are pointing towards 8150 – 8200 as very important level on upside. Strong break above these levels along with extreme reading on momentum indicators will confirm that the medium term trend is extending further from here. Failure of prices to cross this zone and divergences on various indicators from here on will send across cautious sign. Next few days of price action will provide a clear conclusion. For now, over short term break above 8000 will continue the short term positive trend towards 8150 with 7820 as important support.

“The Financial Waves short term update” research report is published on daily basis that shows detailed Elliott wave structure applied along with other technical tools and advanced concepts on Nifty, Bank Nifty, stocks. For subscription options visit Pricing Page.

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