Thursday, May 23, 2013

Nifty Elliott wave analysis - Is this start of next major trend?

By Waves Strategy Advisors, For more information on subscribing to equity research report write to or visit
Nifty has fallen by more than 100 points as of now with major blue chip stocks trading at day’s low and down by more than 3%. 
This has happened exactly at the time when the expectations in the market again started for upside targets of 6700++ levels. We have been constantly warning our readers of “The Financial Waves” equity research report of an impending top and we clearly stated that we will not buy into the euphoria and story for Nifty touching new life time highs. The below brief notes are picked up from our recent issues of Equity research and read it yourself to see why it is important to use objective tools like Elliott waves, Sentiments, Channels…
SBI and LT the 2 major index stocks are down by more than 6% and the argument can be made that it has fallen based on poor result earnings. I do not disagree to that but there are other stocks as well that has no news associated with them and are down by more than 6%. We continue to believe that the event can produce only short term spikes but the major trend eventually resumes. To trade profitably it is important not to rely on news since the outcome and reaction can be random but use other well defined objective techniques.
On 21st May morning report we mentioned: Nifty daily chart shows minor negative divergence on RSI indicator near 70 levels. There is already a lot of euphoria created for markets to reach life time highs and probably cross 6700 ++ levels on upside. We continue to adopt contrarian view looking at the significant lack of momentum and a very few indices or stocks participating in the current rally. As long as this continues we should continue to see a distribution formation andstocks moving out from strong hands to weak hands.
On 22nd May morning report we mentioned: Indian markets have been ensuring that as soon as strong bullish sentiments are created and maximum number of analysts start coming out with Nifty targets of more than 6700 levels prices reverses just to fade away the positive outlook. We are closely monitoring if the same happens even now. For us only a close above 6450 along with pick up in overall breadth of markets, participation from not just 1 or 2 sub-indices but a healthier inclusion of sectors will force us to come out with upside bullish levels. Till then we are looking at the current scenario as topping…. Aggressive selloff from current levels will indicate major top is in place trapping the bullish traders exactly at the wrong time yet again!
On 23rd May (today) morning report we mentioned: Nifty had a gap up opening of more than 20 points but prices failed to sustain the gap and selling accelerated during second half of the trading session. Prices made high of 6148 and closed below the support zone of 6100 – 6110 levels. This indicates that the near term trend continues to be negative.
………. this time the move up from 5970 to 6230 has been very steep unlike previous tops which were made on back of slowing momentum and more than 2 to 3 divergences. The top made at 6100 on January 29th 2013 had a very clear wedge pattern formation with 5 divergences on daily chart. The top made on 11th May 2013 at 6114 again had very similar setup, divergences, Fibonacci retracement levels and channel break  which helped us to capture the down move of almost 150 points which unfortunately did not realized into bigger downtrend and prices reversed. But this time the move up has broken above the levels of 2012 and 2013 and made high at the level which was last seen in November 2010. So this time we do not have the luxury of near term price data to have high conviction whether the top is in place. Secondly the previous pivot low is at 5970 levels which is almost 260 points below the top and as we said before it is ideal for prices to break this pivot low to confirm larger downtrend has started. However from trading perspective such far away levels can be challenging from Risk Reward perspective. During such scenario the best practice is to have less leverage and keep trailing short positions with prudent stoplossso that if short term trend gets converted into larger downtrend one can ride it on downside or if the trend reverses back on upside one can exit by locking in small profits or at breakeven levels and not losing anything. …..
We published an interim update as well to our readers that stated following: Nifty has retraced the complete up move from 5970 to 6230 in faster time. Apart from short term trend the major trend has also probably changed to down for the year. Avoid creating any fresh long positions and use trailing stop method for existing short positions to ride the trend!
We will publish the downside projections in tomorrow’s report with crucial risk management levels. Stay tuned!!!
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