Nifty forming base before next leg up!

Bottom Line: Nifty needs to cross above 5180 - 5190 level for opening up wave iii on upside.

Nifty Daily chart:

   

 Nifty 60 mins chart:

Scenario 1:

Alternative 2:

 Wave Analysis:

We mentioned in our previous report that, “In short, a close above 5190 will be strongly positive and will open up wave iii towards 5600 or higher whereas any move below 5090 will indicate the correction is not yet complete. A day or 2 of action will be important to observe.”

Nifty made a low of 5094 and turned exactly from the level we have mentioned as crucial support.

Prices continue to move in wave ii as shown on 60 mins chart. Nifty had a gap down opening on Friday given the strong selloff in world equity markets but prices managed to recover back smartly during second half of the day. Midcap and Smallcap index both closed positive and good strength was seen in high beta stocks. On weekly basis, Nifty closed almost at same level compared to last Friday and shows no impact of bad news. This is positive.

We have been mentioning since the start of up leg from 4850 levels to use trailing stop method as there can be strong uptrend ahead towards 5600 + levels. For positional longs we mentioned to use 5030 as stop loss and over past entire week of correction this level was not taken out. Infact as seen on 60 mins chart prices have retraced merely 23.6% of the prior up leg and this indicates strong resilience to the downside. Significant sell off in global markets impacted Indian markets only momentarily and prices managed to close the gap down opening during later hours of trade.

Sharp depreciation seen in Indian Rupee will be impacting equity market adversely is the talk of the town. But the correlation is little low as of now and Nifty has rallied from the low of 4770 towards 5180 levels whereas Rupee has depreciated at the same time. A 3^rd leg up in Nifty will result into appreciation of INR. However it is important to wait for confirmation on Nifty above 5185 – 5190 and a break of 56.40 in INR on downside will indicate positivity for Indian rupee (i.e. USDINR should move down).

In short, a move above 5185 – 5190 will be strongly positive for Nifty and high beta sectors /stocks have already started showing resumption of uptrend. As long as 5090 is intact on downside the uptrend can start anytime now…