Nifty - A major top in place!!!

Bottom Line: RBI cut repo rate by 25 bps exactly as predicted by Bond yields showed in previous report. Nifty had a strong reversal day!

Nifty Daily chart:

  

Nifty 60 mins chart:

Wave Analysis:

We mentioned in previous update, “From wave perspective, the up move looks to be near completion but we will continue to adopt conservative stand by waiting for bearish confirmation below 6020 followed by 5980. Today’s close will also be important which will indicate market’s reaction to RBI’s stand on monetary policy. A negative reaction to positive event is bearish and vice-versa…”

12 month Bond yield chart helped in predicting cut in repo rate by 25 bps. RBI also reduced CRR by 25 bps. Nifty reacted higher as soon as the announcement was made. Prices in next hour after announcement touched a high of 6111. However during second half of the day prices failed to sustain at those levels and moved down equally fast and made a low of 6043.

This not only produces a strong reversal bar on Nifty but many of the stocks that moved up along with index but gave away all the gains and closed negative. Such reversal bars if followed by a negative day is bearish and will indicate an important top is in place. We have been expecting completion of wedge pattern since a week now but as mentioned before a confirmation of wedge completion requires break of lower trendline of the pattern. As shown on 60 mins chart, prices have closed near the lower end of the trendline and a move below 6020 will confirm its break.

Yesterday’s strong down move in later part of the day also retraced the up move from 6060 to 6111 in lesser time thereby providing negative confirmation on smaller degree. All the sectors except FMCG closed negative and advance decline deteriorated to 1100 vs 1736 on BSE. Midcap and Smallcap indices were positive in morning but closed more than half a percent down.

As shown on the daily chart, each of the up move has been associated with slower momentum. RSI is now exhibiting 5^th divergence on daily scale which is a rare event. Such strong divergences can occur either in sideways consolidations or before strong down moves.

Positional longs can now trail their stops toward 6000 level from 5980 mentioned previously.

In short, a move below 6020 will confirm that the down leg has started which will break the wedge pattern on downside. Also a negative close today will confirm the significance of Key reversal bar formed yesterday.