Reliance Industries from the largecap space had been a strong outperformer over past few years and is one of the major reasons of providing support to Nifty.
We have shown long term outlook on Reliance using Elliott wave theory, Time cycles and its correlation with Crude oil.
For indepth understanding of Hurst’s Time cycles with Neo wave you can check here
Following was published in our monthly research report on 9th October 2019
Reliance Industries Weekly chart
Reliance and Crude correlation
Following part of research is picked up from “The Financial waves monthly update” published on 9th October 2019.
It is very important to understand the behaviour of leading stocks during the market phase in which broader markets seems to be witnessing a selloff. We have picked up Reliance Industries this time to understand the long term as well as short to medium term trends.
Elliott wave perspective: This is classical example of how an impulsive wave looks like! If we observe since 1999 this stock is moving higher in Cycle Degree wave III. Within this prices are in primary wave 5 and has been respecting the moving average very well. As long as 100 weeks average remains protected outlook for this stock will remain sideways to positive. Prices are currently moving in form of wave (ii) of 5 and post its completion we should start seeing wave (iii) on upside.
Correlation of Reliance and Crude: We have shown Reliance (Blue colour) and Crude prices (Red colour) to understand the correlation. As we all know Reliance is one of the biggest refining and marketing company thus profitability of business also depends on Crude prices. The same can be reflected in charts also.
During the period from 2003 to 2008, Reliance performed well and showed sharp up move and same can be seen in Crude which showed uptrend. In 2008 Reliance made important top whereas few months later Crude formed top and started to mover lower. This was classical negative intermarket divergences that we can see. From 2009 to 2016, both these asset classes moved in tandem (However magnitude can be different). The fall in Crude prices lead to consolidation in Reliance stock and vice versa. In start of 2016 Crude fall got arrested and started to show positive ticks. Crude as well started rallying from July 2017 and formed a high in October 2018, during this period we saw Reliance move higher form 680 to 1260 levels.
Recently Crude and Reliance is showing divergence where we can see Reliance made a higher high whereas Crude made a lower high. Will this indicate a negative divergence like we saw in 2008? Or will Crude prices try to catch up with the stock price. On a few occasions Crude was leading whereas on other Reliance showed leading behaviour. It is now the time where we have to keep a close watch on Crude prices and see if it can start gaining along with Reliance move or not. Failure to do that will be a sign of concern for both of these assets.
The medium term charts of Crude looks to be placed at a crucial juncture and over short term some consolidation is possible. Hence the trend of Reliance can also remain in a range for few months’ post which uptrend should start.
In short, Reliance can remain in a range for near term perspective. Break above ….. will result in to start of next leg on upside and target towards …….. can be expected. ………. We have seen more positive correlation between Indian Equity markets and Crude rather than negative. So, keep a close watch on this index heavy weight and the energy major – Crude!!!
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