Monday, February 28, 2011

Pre - Budget Snapshot

Nifty snapshot - Budget

Today we have shown the impact of Budget on Indian Markets since 2007. As seen from 4 different charts on first page we can easily make out that the Budget day produces big movements on intraday basis but relatively small percentage movements on closing basis.

A very important thing to observe is that Budget day is actually a trend continuation event. As seen in 2010 the trend was up from the start of February. On Budget day this trend continued upward with follow-up rally for couple of weeks. In 2009 the trend was down since mid February and Budget day produced a good downward swing which also continued atleast till mid March. In 2008, after capitulating in January we were consolidating and prices resumed the major downtrend starting the Budget day atleast till mid March again. The same story stands true for 2007 a year of strong rally but downtrend seen before and after Budget.

Based on the above evidences we think if this time is no different we have seen a good down move since mid February and Budget day should resume that down trend with good intraday moves but small percentage move on closing basis. We will not fully rely on this information and to support our analysis we have shown Elliott wave structure on Nifty on 60 mins chart. We can see that prices are moving impulsively down after completing wave X and are in minute wave iv. We are left with wave v which will take us around 5100 – 5150 atleast.

Given the above scenarios during Budget season and Elliott wave structure we are bearish over short term and today the down trend will resume. Please be careful as the intraday volatility will be very high and prices might move in a particular direction based on certain event with no probable explanation. These are the spikes produced by news but major trend will resume as soon as event fades out.

Also we mentioned earlier that “The steep fall, if coincides with the “Budget day”, will be blamed on policy makers and the news media will find one more reason to explain the fall after it has happened!” We will keep 5400 – 5425 as our crucial Risk management level for the downward move.

We have analysed various sub indices like NSE midcap, IT index, Banking index and we are "NOT" seeing any positive divergences in any of the sectors.

The sentiments and mass psychology will try to find wrong things even in right decisions to sell their positions as the sentiments for us are bearish. We will still keep 5425 on Nifty as crucial Risk management level and will remain aware of the fact that we can be whipsawed given the event today. But it will save us a lot if we are wrongly placed and Budget this time becomes a trend reversal event rather than trend continuation which for now looks low probability!

Friday, February 25, 2011

Nifty: Resumption of major trend i.e. DOWN!

Nifty 60 mins

As mentioned before, Nifty broke the level 5400 and capitulated on downside to close the day at 5281. The levels we have been mentioning as key support for quite sometime proved to be prudent and we are now headed to make new low for the year below 5100 atleast.

The downward trend has resumed and yesterday’s steep fall was broad based with participation from all the sectors. Not even a single sector was in green and this was one of the biggest fall seen since past 15 months or so. We have been constantly saying since Nifty started falling from 6100 levels that we are in for a bigger degree correction and many will be taken by surprise except our readers! For now, Wave X up is complete and ride the trend down as long as 5380 is not taken out on upside.

Over next 1 to 2 days we might see some panic selling happening due to increase in margin pressure and long roll overs on expiry day. These are the times when no fundamentals will work and the sentiments which now have turned bearish will be the key driver of the markets. The steep fall, if coincides with the “Budget day”, will be blamed on policy makers and the news media will find one more reason to explain the fall after it has happened!

Monday, February 21, 2011

NSE Midcap: Moved perfectly as anticipated!

NSE Midcap
Anticipated on 31st Jan


NSE Midcap Index:

We stated earlier on 31January 2011: “…. We are convinced that this is a higher degree correction in form of wave 2 that can retrace anywhere between 38.2% to 61.8% of the entire move up from 3000 to 9800.Our first target is the area of previous 4th wave that comes in at 7250 and this also mark the zone for 38.2% retracement level. We do not expect any significant bounce back now before this level is achieved…” The chart above itself conveys what we want to say about the forecast. NSE Midcap gave a spike at 7220 on 10th Feb and reversed the very same day. It beautifully touched 38.2% level and reversed. This is the power of Fibonacci when applied correctly and combined with Elliott wave.

For now, it is difficult to say that the entire down move that started in December 2010 is complete or we still have to see further leg down till 6500 levels. A move above 8250 will confirm that an intermediate degree bottom is in place. Any move below 7400 will take this index further down till 6500 levels. For short term, we remain bullish and the down move on Friday as corrective pattern, confirmation of which is obtained by move above 7900 levels!

Nifty: In wave X !!

Nifty 60 mins

Given the strength in Nifty over last week we have adopted Alternate sceanrio 2 as preferred. Friday's fall has taken many by surprise but it no where confirms that the major trend which for now is down has resumed. We are still in wave X and the trend still remains up over short term and any steep movement down from here below 5370 - 5400, we will know that major down trend has resumed and wave X up is over.

Corrective Waves B and X are very difficult to trade and are very much unpredictable. One should recharge the emotions for tough times ahead if this indeed is wave X since they are very tough to trade. As seen on Friday, Prices were in an uptrend in morning and suddenly turned down without giving any warning signs. That is what happens in waves B and X. We are assuming that a simple corrective pattern is developing upwards but we would like you to be cautious at the same time!

We are expecting minor uptrend to start again soon confirmation of which is obtained above 5495 but a deeper correction below 5370 - 5400 will mean major downward trend has resumed.

Sunday, February 20, 2011

Fractal Nature! THRILLING!!!

Fractal Nature: Nifty
Came across this amazing Fractal nature shown by Nifty on 15 mins chart of past few days and Weekly chart of past few years. It is just unbelievable how accurately prices have mimicked. Even the election results gap seen on weekly chart is seen on 15 mins chart as well.
Are news driving the markets! I have my doubts!!!

Sunday, February 13, 2011

Nifty: Alternate Plausibile Scenarios!!!

Nifty Daily chart

Nifty Daily chart

Nifty 120 mins chart

Nifty 120 mins chart: Alternate scenario 1

Nifty 120 mins chart: Alternate scenario 2


We have shown 5 different charts of Nifty today with couple of alternate plausibility. Let us analyze each chart.

Nifty Daily chart: As seen on first & second daily chart, we are in for some deeper correction in Indian Markets. Prices took some support on the lower trendline that joins wave 4. Nifty has clearly broken down below the major Moving Averages and trendlines. This confirms the correction is of intermediate degree of entire rally from October 2008 onwards. Very deep correction in Small Cap and Mid Cap indices confirms this analysis. 38.2% retracement level comes in around 4800 with wave 4 support also lying at that level. Since this is a higher degree correction wave (2) we expect prices to retrace atleast 38.2% to 50% of entire rally (1) if not 61.8%. This gives a minimum target for down move to be around 4800 and plausibly lower!

Nifty 120 mins chart: This chart presents a case where we are considering wave (i) – (ii), i – ii formation and a very steep down move can start anytime soon. This scenario looks more probable since wave ii looks very small compared to wave (ii) to be considered as a 4th wave. Also Nifty has been selling off in stock rotational formation where a specific group of stocks leads the fall only to correct upward the next day when the other group of stocks falls. For example: within Banking sector itself ICICIBank, IDBI, etc were falling and SBI correcting upwards then SBI started falling, Capital goods stocks were falling with IT sector looking strong but the IT sector gave away next day with capital goods completing the upward minor correction. This form of sector and stock rotation has lead to a very brief bounce back in Nifty and the selloff has been in a very rhythmic fashion. Friday’s rally was seen in Banking sector and Capital goods (weakest of the sectors) whereas IT and Metals were the draggers (the strongest of the sectors). Looking at these structural movements we consider this scenario as preferred and any follow up rally in next 2 days above 5370 – 5400, we will adopt the alternate scenario.

Nifty 120 mins chart Alternate scenario 1: This scenario suggest we have completed just minor degree 3 with wave 4 formation started. This scenario considers entire down move in 5 wave structure and we are yet to see wave 5 down and wave 4 has started with Friday’s rally. This remains alternate possibility and we will adopt this scenario if Nifty continues to move sideways over next couple of days in the form of a triangle. The probable path is as shown for this scenario to be valid.

Nifty 120 mins chart Alternate scenario 2: This scenario considers entire down move as a Zig Zag correction in the form of wave A- B- C and Friday’s low mark an end to the entire correction. But this is probably only wave W and not completed correction of entire rally since as seen on Daily chart this is an intermediate degree correction. As per this scenario we can see some deeper correction which can take Nifty to 5700 – 5750 levels in 3 wave formation and then we will start a downward move again. We will adopt this alternate possibility if we see steep rally next week. The probable path is as shown for this scenario to be valid.

In short, we remain bearish on Indian markets with Friday’s rally as only minor relief rally and the downtrend will resume soon. The other scenarios will be adopted as preferred based on nature of upward correction we see in coming few days. Till we see a clear directional move trade with CAUTION over next few days!

Monday, February 7, 2011

Serious Capitulation Plausible!

Nifty Daily
Nifty 60 mins

Nifty touched the lower boundary of the corrective blue channel as shown on the daily chart near 5550. We do not see prices going farther away from there. A break of 5450 on downside confirmed that the prices are resuming the downtrend. We are measuring the pulse of Mr. Market very accurately. On Friday Nifty made a high of 5556 and reversed to close the day at 5390. The moment it broke below 5450 prices went down impulsively to touch an intraday low of 5369.

Fractal Nature: RSI has been reflecting a pattern valid on different time frames. We have circled the areas of RSI on 60 mins that reflects similar patterns from larger to smaller time period. RSI has been struggling going up as seen on all 3 circled patterns and very easily moving down. This just confirms that the trend still remains down and we do not have indication of momentum loss as yet.

We can now indeed be in a 3 of 3 of C/3 and so prices can just start capitulating lower and lower without any buying. We would have liked to avoid such strong statement but the chart structure and pattern development forces us to give higher probability to this scenario. Please do not buy in into rally if any happens. We would state it here if we go wrong and prices convey the next best probable scenario. Till then we stick with extremely bearish wave counts!

5550 is now extremely crucial resistance level and a move above it will raise the odds of alternate possibilities. As seen on daily chart 4800 now is the next very strong support zone that marks 38.2% retracement of the entire rally that started in October 2008 and also the previous 4th wave support level.

We would like to convey that predicting the future is always a probability and not certainty. We have been pretty accurate lately but we would still like to have alternates as plausibility and would visit them as and when we see current forecast going out of track. For now lets move with the bigger trend and let market provide indication if it is exhausted falling. Till then enjoy the fire crackers!