Nifty Sharp fall: Predicting based on Neo wave Diametric pattern, AD Line and TRIN indicator irrespective of BREXIT decision!

Finally verdict is out suggesting that Britain will exit from European Union. Due to the same Global Equity Markets are capitulating in today’s session. 
Indian Equity Markets are no different than others which has lost more than 3.20% by 1:08 pm. Now majority will relate this sharp fall with BREXIT issue however what if we say that
 Markets were hinting towards serious decline before a month back based on Neo wave pattern, Advance decline ratio and TRIN indicator.  Below we have shown part of research taken 
from “The Financial Waves Monthly update” and “The Financial Waves Short Term Update”.

Nifty Neo wave plot (Anticipated on 6th June 2016)

(Research taken from The Financial Waves Monthly Update published on 6th June 2016)

Nifty Neo wave plot (Happened till now)

(Research taken from The Financial Waves Monthly Update published on 6th June 2016)

Diametric pattern on lower degree: As shown on the Neo wave plot in Figure 3 – after forming wave x near the lows of 7516 on 11th April 2016, currently wave e of the Diametric pattern is in formation. The initial legs of this pattern showed contraction and we should now see expansion in legs e,f and g. However, we have observed that wave g is normally a short affair both in terms of price and time and it will not necessarily mimic wave a. Currently, wave e is ongoing and post its  completion we should see few days of retracement of the current up leg in form of wave f. This wave f can travel towards the channel support area which is near  psychological 8000 mark before the final wave g on upside completes the entire rally that started from 6825 levels.

Happened: Nifty moved exactly as expected. The index was trading near 8250-8300 in the start of June 2016, we expected down move towards 8000 in form of wave f and then wave g on upside. Nifty did move towards 8060 level by 14th June 2016 and then wave g towards 8285 level by 23rd June 2016 which indeed was a short affair both in terms of price and time.

Now look at the below indicators which were shown over past few weeks in our daily research report “The Financial Waves short term update” that warned about weakness in rally!

Advance Decline line (AD line)

(Part of research published in the Monthly report dated 6th June 2016)

Advance Decline line measures the cumulative number of advancing stocks to that of the declining stocks. We can clearly see from the chart above that this AD line is still near the lows of February when Nifty has continued to move higher. It shows on an average basis there has been more number of declining stocks than that of advancing even during the rising market and so this indicator kept on drifting lower. Wave characteristics provide higher conviction to existing counts.  The above wave characteristics conform to the current outlook that the broader market is failing to participate in the up move which is typical during the final legs of corrective pattern.

In a nutshell, the ongoing wave B can consume two more weeks to complete before we can start seeing strong move on downside. On one lower degree post completion of wave e, wave f should correct part of the recent run up. Also the overall breadth indicators are in sync with our existing wave counts suggesting that this is NOT the start of new bull trend but only a part of ongoing bigger degree correction that started at 9119 in 2014!

Happened: Here we have clearly mentioned that the rally started from 6825 level is not the fresh bull trend on upside as the rally was corrective in nature and Market breadth was deteriorating.

NSE TRIN Indicator: (Published in the morning of 22nd June 2016 taken from The Financial Waves Short Term Update)

(Part of research taken from the report dated 22nd June 2016)

TRIN Indicator: During the crucial juncture we have often covered TRIN indicator to know the overbought or oversold level. 

The zone of 1.2-1.3 suggests oversold state of market whereas zone of 0.6-0.5 indicates overbought state.As of now TRIN is at 0.5 level which was not witnessed earlier in last 2 years. This indicates that most of Volumes have already gone into buying and it is time to stay alert now. Nevertheless, it is the time not to be complacent in current market environment. TRIN indicator has inverse correlation with that of prices and such extreme readings are not very often.

Before BREXIT: (Below is part of research taken from “The Financial Waves Short Term Update”dated 23rd June 2016)

Bank Nifty has been underperforming over past few days and even the outperforming stocks like Yes Bank, SBI has lost its momentum and exhibiting distribution behavior. Along with this as mentioned earlier even though Nifty managed to move higher, Bank Nifty has still failed to take out the highs of 15th June. Moreover yesterday’s breadth was near 978 advancing to 1591 declines on BSE even though index was down by mere 0.20%. The number of stocks hitting new 52 week’s high is also on decrease indicating that there is loss of momentum over past few days. The AD line is on the verge of breaking the lows when of 29th February 2016 when Nifty was at 6825. These are NOT very promising signs and above that the expectations of seeing Nifty back towards 9000 is on a rise post the BREXIT event.

In short, majority of the indicators are again getting aligned when the breadth in the underlying market is deteriorating and everyone is busy focusing on the outcome of BREXIT event to create long positions. TRIN indicator, AD line, Channels, Number of new highs, Elliott wave pattern, sectoral divergences are hinting towards shift in sentiments and market dynamics. Price confirmation is going to be important which will be below 8100. Move above 8265 will extend short term up move but that will be the final breath for the market before medium term reversal.

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