Following article is published in morning daily research report "The Financial Waves" by Waves Strategy Advisors. We have been constantly warning our subscribers about an upcoming downtrend in Nifty which materialized today. To know more on subscribing this daily research report visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com
Bottom Line: Nifty continues to protect its
previous lows on closing basis. Momentum is reaching extreme levels! USDINR
gave a strong breakout from yearlong pattern…
USDINR Daily chart spot:
Wave Analysis:
USDINR has given a very important move on Friday. Prices have managed to
close above the year long resistance line. If this breakout as shown on above
chart is valid then we should expect a strong up move towards 57 levels or
higher very quickly. Indian currency pair has been moving more independently
over past few weeks irrespective of movement in equity markets. However such
isolated movement cannot last for extended period of time and we can see
increase in correlation again between INR and Equity. Also INR has been
constantly protecting the lower end of the trendline despite of sharp up move
in equity markets.
Nifty up move on Friday failed to provide any negative movement on USDINR
which was also up by more than 1% in single day. If the breakout is genuine and
INR is leading this time then equity should turn down to support the breakout
on USDINR.
In short, it will be extremely interesting to observe if Nifty can
continue the uptrend on back of depreciation in Indian Rupee which is now
expected to reach near 57 levels. But we have our doubts and equity markets
should now oblige sometime this week by turning down and giving negative price
confirmation. But unless Nifty closes below important supports we will refrain
from catching a top!
Nifty daily
chart:
Nifty 60 mins
chart:
Wave Analysis:
Nifty
continued to move in uptrend and has so far not given any negative price
confirmation. The individual parameters are reaching extreme levels and
slowdown in momentum is very much evident from the momentum indicators on
shorter time frames. However as we have been constantly mentioning price
confirmation is one parameter which is still pending. A strong build up in
momentum from current levels will change the parameters that are derivatives of
price but such movements are rare events. Please understand that the
probabilities are still high for prices to turn but there are always
alternative scenarios to be embraced in case prices do not conform as expected.
Even on Friday
and testing period on Saturday Nifty and Sensex both have managed to close
above the previous day’s low and not yet closed below any of the levels we have
mentioned in past week thereby maintaining the short term trend on upside. In
the entire up move from 5470 to current levels not a single bar has closed
below previous day’s low and this one simple technique of price has not given
negative confirmation. A close below previous bar does not necessarily mean
start of downtrend but does indicate halt in the uptrend and atleast sideways
action if not negative. Break of important supports currently at 6045 and 6020
will indicate a move atleast towards 5850 levels over short term. We will have
clear downside projection once we have negative price confirmation.
Mean reversion:We are showing the concept of
Moving averages and difference of 2 moving average which has been giving very
good indication on maturity of trend. As seen on daily chart 5 period
Exponential and 20 period Exponential moving averages are very good from
providing supports, resistance and direction of trend. Each day’s low has been
taking support on 5 days MA and only a break below this which is currently at 6045
will indicate that the short term uptrend is in danger. The difference of
Moving average helps us to understand if prices are due for mean reversion.
Mean reversion is a statistical technique and it indicates prices eventually
revert to its mean. We are using 20 days exponential MA as mean. The difference
of 5 and 20 MA has reached an extreme level seen in entire year which again
indicates a mean reversion should happen and 5 days MA along with prices should
move back towards 20 days MA.
USDINR movement:USDINR chart shown above is now
added as another negative parameter for equity markets and if our projection on
USDINR towards 57 is correct which cannot happen without turn in equity markets
on downside. As we always mention correlation in Currency & Equity markets
are high during major turning points and the lead lag effect lasts only for few
days. The magnitude of rise or fall varies but turning happens in close
proximity.
RSI on hourly
chart continues to show loss of momentum and negative divergence. However a
strong move up above 6140 will remove this divergence and will also break the
upward sloping resistance trendline opening further upside potential.
In short, we
continue to re-iterate that many of the techniques are showing weakness in
current uptrend but prices are yet to confirm. A move below 6045 will now be required
as first sign of weakness and we will adopt alternative scenario on close above
6140 levels and /or if overall breadth & momentum of market starts
improving from here on!
The above is published in morning daily research report "The Financial Waves" by Waves Strategy Advisors. We have been constantly warning our subscribers about an upcoming downtrend in Nifty which materialized today. To know more on subscribing this daily research report visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com
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