Where is Nifty headed post the Indian notes and US votes? Nifty has managed to recover massive 450 points from day’s low near 8000 mark.
Events result into short term random movement but eventually original trend resumes. Today was all about the patience game. It seems that it is not only India but the entire world is craving for a change. Much awaited US Presidential Election outcome is finally here and funny part is markets are at the level where they were supposed to be irrespective of who is elected in US.
In morning we saw a knee jerk reaction due to duel impact post Mr. Modi announced a sudden step of withdrawing Rs. 500 and Rs. 1000 notes from midnight itself and uncertainty was looming in US Presidential Election.
We believe that market reacts on news or events that produce only temporary blips and eventually the original trend resumes. Today is also a classic case of this and we have already seen what happened post #BREXIT as well.
Now read below a brief gist on Nifty produced from “The Financial Waves Trading update” that covers Nifty intraday trading strategy as well:
“This is a very bold step towards curbing down black money but will result into short term liquidity crunch. The impact can be multifold on the Real Estate and other related sectors that has transactions majorly in cash. This can adversely impact banks as they might have to increase provisions for NPA for coming quarters in case they are exposed to lower quality credit loans. Markets hate uncertainty and this is surely one such time when no one knows how the economy will be impacted by sudden curb of black money that had created a parallel economy over many years. Over long run this is a brilliant measure that will help bring back money in productive form and create stronger base but definitely over short term it can create panic especially when the rally was driven majorly by liquidity.
To add fuel to this the uncertainty still looms over US Presidential Election and it is unclear if Hillary Clinton is going to make it. Global markets are already substantially negative as of now.”
Now coming back to Nifty there was a sharp bounce back from the lows of 8400 but the combined uncertainty is going to result into a sharp Gap down opening below the previous low as well. From wave perspective it seems the up move was only wave b of z and we are going to see down move in the form of wave c. Trading such sharp fall can be a challenge as there is not going to be any risk reward. Also long positions will be stuck due to the event driven fall and am sure no liquidity to meet the margin calls will further add to the panic scenario.
Nifty 60 minutes chart:
This is a classic case that highlights the fact that one should only risk that much in markets that one can afford to lose otherwise an event like this can make you out of the game very soon. Prudent money management strategy is very crucial as the risk or stoploss in such cases will not help.
The above chart clearly shows that the event only resulted into a temporary move on downside on both the cases and eventually prices will reach the level seen prior to the event.
Elliott wave theory and other technical studies help us to understand the maturity of trend and provide objective way of analysis. Such sudden reversals should be incorporated in trading strategy.
Below is the Nifty trading strategy mentioned in today’s morning research report –The Financial Waves trading update even before equity markets opened. Look for yourself even without knowing the panic low the strategy has worked brilliantly thereby giving nearly 350 points gain.
Strategy for the day: For today, avoid creating short positions as risk reward will not be favorable. Long positions can be created if Nifty manages to bounce back 100 points from the lows and sustains for an hour with day's low as very strict stop and target of 8450. BANG ON!
Happened: Nifty bounced back from the lows and recovered back to the highs of 8475 on intraday basis. We cannot be more accurate than this and it simply shows the power of objective methods rather than relying on news or events to take decisions.
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