Wednesday, December 7, 2016

How to trade Nifty on monetary policy day?

Bottom Line: Nifty traded in a range ahead of RBI Policy. Today’s closing will be important. Movement can be seen 30 minutes after policy announcement.

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:

In the last update we mentioned that, “looking at the overall movement, pattern and indicator we expect range bound action for few days between 8200 and 8000 levels in the form of wave b of E. Decisive break above 8250 will hint towards start of wave c of E on upside whereas move below 7915 will be bearish!”

In the last session Nifty had minor Gap up opening near 8150 level and prices moved higher towards 8178 level. However in last one hour momentum failed to pickup and there was short term reversal. This happens typically during a sideways market. In this environment, stock specific action has continued and one should trade with strict stop loss until market confirms trend in either direction.

Today RBI’s monetary policy meeting is crucial as it is post the Demonetization announced by Government on 8th November 2016. Majority are expecting a rate cut of atleast 25 bps in today’s meeting. India 10 year Bond yield has shown sharp fall from 6.80 to 6.18 level post 8th November 2016 which suggests that rate cut by 50 bps is also plausible. So today there is going to be high volatility however closing will be important which will also guide for next short term trend. It is normally observed that the trending move starts 30 minutes after the policy announcement. Let us see if the same happens even today.

The daily chart shows that prices are again testing 20 days EMA along with red channel which will act as resistance as per polarity reversal. So move back above 8200 is required which will break the resistance of the channel and will hint towards deeper retracement in the form of wave c of E. Until that happens it is better to wait for break of support or resistance levels.

As shown in 60 mins chart, price had Gap up opening but failed to generate any upside momentum in second half. We have applied Bollinger Bands and in last session Nifty has reversed from the upper Bollinger Bands. Lower Bands is now placed at 8055 which is also the pivot low. Hence for short term trend decisive close either above 8200 or below 8050 is required.

In short, we are expecting 50 bps rate cut by RBI in today’s meeting. Market closing will be important which will decide the short term trend ahead. 8200 and 8055 is the range over near term.

To know the short to medium term Elliott wave counts on Nifty as well as important reversal areas, subscribe to “The Financial Waves Short Term Update” which covers Nifty and 3 stocks on daily basis. For subscription options visit Pricing Page

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