Nifty has been moving in lackluster fashion for many weeks now. We have applied various technical analysis methods to see the maturity of trend.
We have been prudent in capturing the lows near 8500 and index has already rallied by more than 300 points since then. The outlook was mentioned in our daily research report “The Financial Waves short term update” Also as expected the black channel resistance is broken this time since the up leg is of one higher degree. However, momentum has been lacking after just first day of rise on18th October 2016. During such scenarios it is important to look at other technical evidences to understand the maturity of trend and if there are other vital clues they are providing.
Nifty daily chart:
Below part of the research is picked up from “The Financial Waves short term update”
Volumes had remained stable: Volumes normally reduces during a non – trending environment and if there is increase in volume with no net progress in prices it indicates distribution. From the daily chart, we can see that the average of volume (red) shown on the volume indicator had remain stable since July onwards. However, Nifty was trading near 8670 level in last week of July and we are still near to that level. Such non trending move should ideally result into reduction in volume but we can see that the average has continued to be at the same level. This means that there has been exchange of hands without any meaningful progress in prices. Such behavior after a sustained rise is associated with Distribution pattern. It is not very promising sign from medium term perspective.
Average Directional Index (ADX) – ADX indicator measures the strength of the trend. This indicator rises during a strong trending move irrespective whether the trending move is on upside or downside, whereas a non – trending move results into lower reading on ADX. The same is highlighted by black line which has now touched 13 level that was seen during early April just when the bigger degree uptrend was starting. We are seeing this reading again at the current levels that indicates non – trending move after a sustain rise probably a distribution.
ADX is normally calculated using positive Directional Movement index (+DMI) and negative Directional movement index (-DMI) and the average of the difference of this indicators form ADX. In simple terms, it measures the strength of positive bar formation over negative bars over the given period of time. Such low readings on ADX only points towards the fact that a trending move is now due. It does not highlight the direction of the trend but it strongly suggests that the boring trading environment is going to be over soon.
Nifty 60 minutes chart along with detailed Elliott wave counts are shown in the actual research report “The Financial Waves short term update” with short to medium term outlook and key reversal areas. For more details visit Pricing Page.