Nifty in Ending Diagonal pattern

Bottom Line: Nifty closed at the highest level after March 2012. Prices are now in wave 3 of Ending Diagonal pattern.

Nifty Daily chart: 

Nifty 60 mins chart:

Wave Analysis:

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We mentioned in previous update, “Nifty 60 mins chart is showing very good respect for the trend channel. Prices have been taking good support on this channel and is bouncing back. A move above 5378 will form a higher high and higher low formation and will indicate positivity… In short, strength above 5370 – 5378 will be bullish and a move below 5310 – 5300 will indicate sideways action to continue further.”

Nifty continues to take strong support on the blue channel shown on 60 mins chart. Also prices have managed to close above 5378 which is the highest level seen since March 2012. The formation continues to form higher highs and higher lows. All this indicates that the next leg up has started.

Looking at the wave structure and failure of wave 2 to take sufficient time suggests that this wave C up is forming in an Ending Diagonal (Wedge) pattern. Ending diagonal pattern is an Elliott terminology for a wedge shaped structure. This pattern is a different impulsive pattern where all legs are corrective and wave 4 overlaps with wave 1. Also prices constantly lose momentum on the way up. Wave 3 in case of Ending diagonal is usually 61.8% to 76.4% of wave 1. This gives a range for current leg up in wave 3 as 5500 – 5530.

Daily chart shows the probable path we expect for Nifty to follow. Wave C of this flat correction upside which started in January 2012 will probably end sometime in last week of September. Once this wedge pattern is complete the next big leg on downside will start which will retrace complete of this wave C i.e. prices will move towards 4770 in probably 25% to 50% of the time the entire up move from 4770 to 5650 will take.

Over short term the trend remains positive as long as the blue channel shown on 60 mins chart is intact i.e. as long as 5330 is intact on downside. Prices are currently wave a of wave z. Wave z can be equal to wave y and the target comes near 5530. This is the same level where bigger degree wave 3 is equal to 76.4% of wave 1 (shown on daily chart).

To simplify the complexity of wave theory – prices are probably forming a wedge pattern with target of wave 3 coming near 5530 and final target of around 5600 – 5650 levels. This will complete the upside correction and bigger degree down move shall start.

In short, near term trend is positive as long as 5330 is intact on downside and prices can move towards 5500 – 5530 levels.