Monday, August 8, 2016

Is Nifty forming an Expanding Triangle Elliott wave pattern?

Elliott wave pattern: Understanding the Expanding triangle pattern. What is the wave characteristic suggesting?

Bottom Line: Nifty had a Gap up opening above previous high and reversed the trend to positive. We can expect another highs as long as 8550 is intact!

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:

In the last update we mentioned that, “In short, looking at sharp pullback in a few stocks and overlapping fall in Nifty with no momentum there is possibility that the downtrend has not yet started. Close above 8610 will result into positive attempt ...the movement can be sharp so one should be quick to act!"

Movement on Nifty was indeed very sharp and fast. It is therefore important to have a prudent risk level in place while trading to protect against such sharp reversals. Buying was seen across the stocks and sectors. Many of the stocks broke below its previous support levels but only to reverse later as Nifty failed to confirm by breaking below 8490 on downside.

The current leg which started from 7925 levels is still ongoing as there was no faster retracement below the level of 8490 which was last rising segment. This indicates the trend is still positive over short to medium term. Given the number of days consumed by this leg and the expanding nature of the move post wave x there is high possibility that the entire move is infact a running expanding triangle and not Diametric. Currently wave (e) of this pattern is ongoing and prices are again approaching near the upper trendline of this pattern. As the pattern is upward sloping the resistance will keep on shifting higher and it will be only on break back below 8518 there will be sign of weakness. Unless that happens one should avoid catching the top in ongoing euphoria and let the rally run its course.

Banking index has also reversed from lower levels and we are keeping a close watch if it can manage to take out the highs of 19200 this time. Auto and Cement sector showed sharp rise a day after GST rather than on the same day.

As shown on hourly chart, movement post wave x is also in expanding fashion. This results into prices taking out the high without momentum and also the fall only results into reversal in few days. Expanding triangle patterns are most challenging for traders as crucial levels get whipsawed without any trending move. As per this pattern we should now take out the previous high of 8711 and prices can move towards 8730 - 8750 resistance zone. Strong close above this zone is required to extend the rally further.

In short, trend over short term is positive as long as recent lows near 8518 is protected. Avoid catching a top in current euphoric rise unless there is faster retracement below the mentioned level. We are closely observing if momentum builds up as prices approaches the trendline resistance level yet again which has been protected for many weeks now!

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