Friday, May 25, 2012

A brief note on Trading Psychology!

Bottom Line: Nifty continues to do what it is best at over past few months – making trading environment difficult for both longs and shorts!

Nifty Daily chart:

Nifty 60 mins chart:

Wave Analysis:

We mentioned in our previous update, “From trading perspective it is going to be a challenging environment and buying on supports and selling on resistance can be favorable strategy as of now.”

This proved very much accurate. Nifty bounced back from the support level of 4820 – 4830 and rallied hard to close at high point of the day near 4930. Nifty has been doing what it is best at since past few months, making trading environment extremely dynamic for both longs and shorts. The movement over past few days has been exactly like that of UP election result day, Budget day and similar to days when RBI announces monetary policies. Prices move steeply on intraday basis in either of the directions but closes the week with minor gain or loss on net basis. It is therefore imperative to have strict risk management and money management strategies in place with clearly defined objective trading strategy.

From wave perspective, it is difficult to say if Nifty is forming a flat upward correction or a sideways triangle pattern. A flat correction can take this leg up above 4950 towards 4980 and a triangle correction will imply prices will not break 4950 level. As shown on 60 mins chart, prices can also move within the parallel black channel between 4975 – 4850. Only a decisive close above 4970 – 4980 will indicate we are headed towards 5100 to 5150 levels. Also it is too soon to conclude this as next impulse up towards 5600 – 5700 levels unless we cross the strong hurdle at 5150. We still maintain our stand of crossing above 5600 levels once this correction that started in February 22 ends. The confirmation of the same will be obtained above 5150 levels.

In short, the first resistance now lies near 4970 followed by 5100 levels. On downside 4850 should be important level if prices have to continue short term up trend. Break below 4800 can take us towards 4650 levels.

A brief note on Trading Psychology:

Due to such high intraday volatile environment, a trader following strict stop loss might suffer loss on either side due to stop loss being hit and will then try to leverage more with no stop method in place exactly at the wrong time. Fear of being left out can be another emotional trait that can come into play in such trading environment. The reason for describing different thought process & psychology is to make our readers aware not to lose focus and get carried away which will otherwise result into buying high and selling low.

There are different market structures suitable for different trading styles. The current one is rewarding to people who are best playing in a range and buying near supports, selling near resistances. The other set of traders who want to ride the trend does exactly opposite and end up buying high and selling low during such environments. The first set of traders were not able to ride the complete trend up in January but are able to leverage current trading environment whereas it is the other way for second set of traders. There are very few set of people who can switch their trading styles as per the market dynamism successfully. The case in point is all of these trading styles can give money provided if you lose less in the environment not suitable for you. The aim of the game should be to earn profits on net basis with strict money management strategies in place!

Thursday, May 24, 2012

Nifty: Depriciating Rupee a concern!

Bottom Line: Nifty can continue to move sideways between the range of 4810 – 4950 before giving any direction!

Nifty Daily chart:

Nifty 60 mins chart:

Wave Analysis:

Nifty managed to hold 4830 level during first hour of trading but failed to sustain there and made an intraday low near 4806. Failure of prices to rally sharply from the wedge breakout suggests inherent weakness. Also the weakness across global markets and sharp depreciation in Rupee against US Dollar continues to be a concern for near term positivity.

Indian markets are now in very fragile state as bullish patterns are failing and positive divergences are not producing expected outcomes. This usually happens when there is very less participants in the market who are interested in buying and please understand markets can fall even on low volumes.

From wave perspective, there is couple of probable scenarios now possible. We can move in sideways consolidation between 4950 – 4800 over next few days or move up in corrective fashion.

From trading perspective it is going to be a challenging environment and buying on supports and selling on resistance can be favorable strategy as of now. Also the near term trend remains down as prices failed to form any higher highs & higher lows formation.

In short, a break below 4800 can take prices towards 4600 – 4650 levels and positivity towards 5100 will open only above 4950 levels.

Tuesday, May 22, 2012

Nifty shall move above 4950 for positivity!

Bottom Line: Nifty gave a smart recovery after having another gap down opening on Friday. Success to close the gaps indicates positivity!

Nifty Daily chart: as on 18th May

Nifty 15 mins chart: as on 18th May

 Wave Analysis:

We mentioned in previous update, “In short, 4800 – 4830 should be the final line in the sand for prices to turn up. Failure to sustain there will take Nifty towards 4600 – 4550 levels and test the previous 2012 lows. First minor confirmation will now be obtained only above 4950 ….”

On Friday, Nifty had a 70 points gap down opening similar to that of Wednesday’s opening but prices rallied back smartly to close the Big Gap AGAIN!!! This indicates positivity and confirms that the gaps are probably exhaustion gaps that occur during the final stages of trend. 

As shown on Daily chart, Nifty continues to follow channeling technique very precisely. We keep mentioning a very simple technique – channeling to be applied to get probable support and resistance levels. Prices invariably move between these channels if drawn properly. Prices took strong support at the lower trendline of the red channel drawn from the top of February 22. The low made on Friday also only momentarily breached the extended trendline (blue color) drawn from the top of Dec 2010. Prices have managed to close above the minor blue trendline of the last leg of down move from 5250. All this indicates positivity but further price confirmation is obtained on close above 4950 levels.

The Ending diagonal structure shown on 15 mins chart has equal directional legs i.e. waves e = wave c = wave a and wave d = wave b. Also waves b and d retraced the prior legs by exact 50%. It is really a thrilling experience to see how accurately freely traded markets follow mathematical ratios and symmetry to the smallest degree of movement.

If the breakout from the wedge is valid we should now head atleast towards 5100 levels very quickly probably in less than 1/4th of the time the structure took to form. Also if higher degree wave B is over on the downside, wave C shall take prices above 5600 levels. It is however important to wait for further positive confirmation above 4950.

In short, if Nifty manages to cross above 4950 we should head atleast towards 5100 or probably higher. Any move back below 4830 will indicate the correction is not yet over. For long positions keeping 4830 as stop loss is extremely important!

Thursday, May 17, 2012

Nifty at crucial Juncture!

Bottom Line: Global market selloff takes a toll on Indian markets!

Nifty Daily chart: 
Nifty 15 mins chart:
 Wave Analysis:

We mentioned in previous update, “Advance Decline ratio was 1:1 which does not increase conviction in any direction. Prices usually move violently on a break out from wedge shaped structure but we are not seeing that even after trendline being broken on upside. This indicates the formation is probably not yet complete.”

Hang Seng (Hong Kong) & Kospi (Korean) index was down more than 3%, Australian markets were down more than 2%, Japanese, China, other major Asian indices were down more than 1%. All this strongly indicates the selloff was not localized but was a global event yesterday.

Nifty had a big gap down opening of 60 points. Gaps after sustained down or up moves can be exhaustion gaps but it is very tricky to take that stand now unless the gap is filled within a day or two.

Nifty 15 mins chart shows that the ending diagonal pattern is still valid even after a big gap down opening of almost 60 points on Nifty. Prices have been beautifully sticking on the lower blue trendline as shown and the upper red line is acting as strong resistance.

Wave c = wave a and wave e is so far 0.618 * wave c. It is usually observed that wave e is not more than that of wave c in a wedge formation (a guideline). This strongly indicates that for the wedge formation to be a probably pattern Nifty should not move below 4800 levels.

However, we again reiterate the trend continues to be down and bias is negative. Prices have so far not given any positive confirmation even after indicators being oversold and showing positive divergences. Failure to bounce back on divergences indicates inherent weakness. Wave counts are helping us to gauge the maturity of current trend but unless price confirmation on upside is obtained waves can keep on extending downwards.

In short, 4800 – 4830 should be the final line in the sand for prices to turn up. Failure to sustain there will take Nifty towards 4600 – 4550 levels and test the previous 2012 lows. First minor confirmation will now be obtained only above 4950 and higher highs and higher lows is a must to indicate that the trend has changed from down to up. 

Thursday, May 10, 2012

Nifty following a Golden Path!

Bottom Line: Nifty following a Golden path in wave iii….

Nifty Daily chart:

Nifty 15 mins chart: A Golden ratio

Wave Analysis:

Published on 9th May 2012, Nifty gave away the entire move up it made the previous day. We mentioned in previous update, “We are not yet sure if a significant bottom around 5000 is in place. First positive confirmation will be obtained on a move above Friday’s high at 5180 and strong second confirmation is obtained on move above 5280. This will confirm that next leg up towards 5800 has started. However unless these levels are decisively taken out 5000 can be retested again. A move below 5050 will indicate the correction is ongoing and we can have sideways action to form a base before rally.

Nifty opened on a flat note and failed to sustain at yesterday’s level. Prices slowly started drifting lower and gained momentum as soon as 5050 was broken. This clearly shows the importance of that level.

A Golden path: Nifty 15 mins chart shows that each of the minor and minute wave iii is following 1.618 (Golden ratio) of wave i. This clearly reflects the precision with which market moves. Markets are always communicating with us in a cryptographic language we need to decode. If events are driving the prices, then minor wave iii (blue) taking support of 1.618 times wave i (blue) to the point and started rallying. The point to think about is that was the low created due to GAAR event or was it precise 1.618 ratio and prices were destined to rally up from there.

Currently prices have either completed wave iv at 5110 at today’s high or wave iv is still continuing in the form of triangle. If latter is true we might see some pull back today during the day with sideways time consuming action. Also minute wave iii (red) is exactly equal to 1.618 * wave i. If Nifty is still following Golden ratio path in its 3rd waves then prices should move between 4960 and 5020 for few hours and start pulling back up again in minute wave iv.

A faster move above 5110 will now provide first positive confirmation followed by a move above 5180. Unless these levels are taken out the bias remains negative and move below 4960 will indicate current wave iii is extending further towards 4900 levels.

Published on 10th May 2012 morning 8:30 in Financial Edge report, 

Nifty made a low of 4957 and a high of 5016 exactly near the range that was mentioned previously. Prices are taking support near 4960 levels. As long as 4950 level is now protected we can have a pull back today towards 5020 – 5030 levels.

For positivity over medium term it is important that prices break above 5110 levels. Unless that happen the medium term trend is down. We do not rule out the possibility of sideways triangle formation in the form of minor wave iv. However next few days of price action will tell if we have completed the entire down move that started on February 22 or one more leg down is pending.

In short, a break below 4960 will take us towards 4900 levels and any faster move above 5110 will indicate first positive development. Unless that happens, prices can continue to move in the range of 4960 and 5050.

Tuesday, May 8, 2012

Nifty continues its dynamic and complex formation!

Bottom Line: Any move above 5180 will void the bearish implication of this pattern…However some sideways action can be expected!

Nifty Daily chart:

Nifty 60 mins chart:

Wave Analysis:

Indian markets continue to move in dynamic and challenging fashion. Corrections are always difficult to trade and forecast. It is the impulse wave that will lead to capital appreciation and preserving capital during corrections should be the aim. Since February 2012 Nifty has been correcting in a complex formation and pattern which are difficult to apprehend before their development. A simple correction like zigzag or flat are still tradable but when 2 standard corrections are connected by X wave trading is extremely difficult. Nifty has been moving in such a complex correction.

Nifty opened with a big gap down of almost 75 points with extremely weak market breadth yesterday. However, later the rally was triggered by sharp appreciation in Rupee and soft stance on GAAR. We are not yet sure if a significant bottom around 5000 is in place. First positive confirmation will be obtained on a move above Friday’s high at 5180 and strong second confirmation is obtained on move above 5280. This will confirm that next leg up towards 5800 has started. However unless these levels are decisively taken out 5000 can be retested again.

A move below 5050 will indicate the correction is ongoing and we can have sideways action to form a base before rally.

In short, it is imperative to wait for either 5180 to be taken out on upside for positivity followed by 5280 or 5050 to be taken out on downside for more sideways to downside consolidation. We still think 4900 is very crucial support on downside in case 5000 breaks.

Monday, May 7, 2012

Nifty gave a downside break!

Bottom Line: Nifty gave a directional break below 5135 - 5150 levels. The trend remains down for now!

Nifty Daily chart:

Wave Analysis:

Nifty gave a close below 5135 and thereby broke below the lower range of the channel. This is bearish over short term as prices have started trending and in downward direction. From wave perspective we think that we are probably in wave iii of C which can take prices towards 4900 levels. A triangle pattern break target comes around 4850 – 4900 levels.

Indian markets usually follow 76.4% retracement of previous move. This level comes to around 4920 levels. However the momentum looks to be increasing on downward direction and Indian markets can have selloff along with global markets.

In short, the trend remains down with ADX indicator moving on upside indicating that a trending move has probably started in the downward direction. Next support zone is at 4850 – 4920 levels and failure to hold support at these levels can open up further downside possibilities. However we will first wait to see how prices behave around 4900 levels. Only a close above 5180 will indicate positivity.  

Friday, May 4, 2012

Waves Strategy Advisors: The Financial Edge Interim update

Waves Strategy Advisors: The Financial Edge Interim update

1:00 pm

Bottom Line: Nifty has failed to sustain above 5135 levels. It has broken below 200 days MA and individual stocks are looking very weak. Also trend looks gathering strength on downside. Please cover your long positions and wait for break above 5250 to re-initiate. Short positions can keep 5190 as stop on Nifty...

Waves Captal: Nifty continues to be in "NO TRADING ZONE"

Following is picked from the equity daily research publication by Waves Capital ( Write to for more information about this report.

Bottom Line: Nifty continues sideways action. Average directional index pointing towards trending move to start soon!
Nifty daily chart:
ADX indicator

 Nifty Daily chart:

Waves Analysis:

Waves Capital: We mentioned in our previous update, “In short, we can continue sideways action in narrow range for a day or 2 more before eventually moving up. Break above 5280 will be strongly positive. Any move below 5190 will indicate sideways consolidation is extending further.”

Failure of prices to move above 5280 and break of 5190 indicates that the sideways action is continuing further. We have shown Average Directional index (ADX) on first chart. This indicator uses the technique of Average True Range that calculates the true range of current bar compared with the previous bar. ADX helps to determine if the market is trending or non-trending in either of the directions. We can see that this indicator has reached the lowest level which has been seen only 4 times since 2005 till date. The value of 11 was last seen in January 2012 when the big rally started and we can see the sharp increase in this indicator above 20 levels indicating a trending move. During current sideways action over weeks ADX has touched the level of 11 again on 20th April 2012 and bounced back from there. This is suggesting that a trending move shall start very soon. Every time these low levels have reached before we can see a move of atleast 600 points on Nifty in one direction.

Please understand this indicator does not provide information about the direction of the move but it does give a clue if we shall start trending which looks overdue now!

The second chart of Nifty shows that we have been moving in a contracting fashion. Also the number of days has been minimum 3 for up legs and maximum 6 for down legs.
We have completed 1 day of this down leg and there is possibility of atleast 2 more days of sideways action possible. This down leg from 5280 can also take 6 days like previous moves. But since the channel has contracted so much we doubt this leg will last for 6 days. It can make a low of 5160, bounce back over next 1 day and again retest the low at 5160 making it 4 days for completion i.e. by Monday or Tuesday we can probably complete this down leg. It is however imperative for prices to sustain above 5150 – 5135 levels. A close below this level will increase the odds that the trending move can start in downward direction.

Trading in such range bound market is always tricky and when the contracting phase is in its later stages it gets more and more difficult. Avoiding trades until a clear trend emerges will save you both emotionally and financially. Unless a range of 5135 – 5280 is broken avoid looking at stocks for directional moves since most of the stocks will whipsaw around crucial levels every time Nifty changes direction. Nifty is currently in “NO TRADING ZONE” unless we close below 5135 or above 5280…

Option traders should avoid writing calls or puts at such low volatility levels and when we expect a directional move to happen soon after next few trading days!

Wednesday, May 2, 2012

Sensex Time cycle is ripe for an up move!

Bottom Line: Sensex Time cycle is ripe for an up move. INR should start appreciating along with up leg in Equity markets.

Sensex Daily chart:

Sensex Time Cycles:

We first showed 69 days Sensex Time cycle on 25th July 2011. We have been very accurate in capturing major turning points at the time when the emotions have been on extreme sides. In midst of extreme pessimism in January 2012 this cycle helped us to confirm our strong bullish view which was vindicated later.

For now we can see that Indian markets have been correcting in wave B sideways action for many weeks. Time cycles clearly suggest that Sensex was correcting simply time wise as Time cycle low is due on 2nd May 2012 i.e. “TODAY”. We would still give a leeway of + 7 days to form a significant low in Sensex. In short, either a low of wave B is already in place or will be formed over next few days. A move above 17530 will provide strong positive confirmation. Cycle lows are usually associated with gapping up actions and we are closely watching for such structural moves.

Please understand Time cycles might change or vanish without prior indications. We are assuming that the current 69 days cycle is still active. Price confirmation is necessary for this bullish outlook. Unless that happens we can continue to correct sideways or drift lower.

In short, any move above 17530 will indicate next leg up has started towards 19900 levels which can be reached by mid of June. Failure of prices to rally over next 7 days will raise the odds that current cycle has changed and we could retest the lower trendline near 16900.