Nifty: Power of Failed Pattern!

Views on Nifty along with stocks are published on daily basis in morning before market opens in "The Financial Waves" short term update research report by Waves Strategy Advisors. To subscribe this daily research visit www.wavesstrategy.com or write to helpdesk@Wavesstrategy.comNifty showed sharp reversal yesterday and prices managed to close back within the wedge pattern!

Nifty daily chart:

Nifty 60 mins chart

Wave Analysis:

In previous update we mentioned that “The short term wave counts suggest that prices are in minor wave v of wave 3. However, a move above 5660 followed by 5680 will result into break of the channel on upside and will open positive alternatives. In short, any move below 5565 will resume the downtrend and prices can then move down towards 5470 levels whereas close above 5660 will be positive over short term.”

Nifty had a Gap up opening of almost 50 points on expiry day. Prices opened near 5645 levels and stayed between 5655 and 5630 for most part of the day. During second half as soon as 5655 level was broken on upside index quickly reached near 5700 levels.

The move above 5680 was sufficient to bring back prices within the wedge pattern as shown on daily chart. Prices are also almost on the verge of breaking the downward sloping corrective channel on upside. We adopted impulsive assumption as the wedge pattern was broken and there were chances of sharp selloff. A move back above the lower trendline of the pattern makes it false breakout. We are adopting corrective stand for current downfall since prices are able to move back within the wedge pattern and can result into sharp reaction on upside. Statistics show that a failed pattern carries higher chances of success in opposite direction than compared to valid pattern breakout. Also a failed pattern can result into violent moves in opposite direction i.e. on upside.

A move above 5750 followed by 5850 will confirm that the topping process is still ongoing and prices can then retest 6100 levels on upside before the downtrend begins. Whereas any move below the low of 5565 will resume the downtrend.

As shown on 60 mins chart prices have closed exactly on the downward sloping channel. More price action is required to confirm that the entire down move is complete and next leg on upside has started.A move above 5750 will further confirm this scenario.

The rally on last day of June series was limited to few heavy weights and there was hardly any participation from the broader market. The Advance decline ratio was also equally distributed. Many of the stocks that gave break on downside on Wednesday during final hour re-entered above the breakout area resulting into false breakout. Again this will be a failed pattern which can result into violent move on upside.

In short, it will be important to see how prices behave today. A strong Gap up opening which is sustained during second half will be strongly bullish and will open up possibilities for 6100 – 6200 levels on upside. Also this up move will be impulsive in nature which means it can be very fast and can surprise many. We are having the conviction of such strong moves on upside as we are aware of the Power of failed Patterns and the wonders they behold! 

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