What is Relative Strength Index (RSI) indicator? Combining with Elliott wave principle!

What is RSI?

The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements, which was developed by J. Welles Wilder.

Many people use RSI to understand overbought and oversold state of market but during strong trending moves prices can remain in strong overbought region or oversold region for extended period of time. It therefore  become necessary to see if market is in a trending mode or a trading range.

We use RSI along with Elliott wave counts to majorly determine positive or negative divergences between prices and indicator. Whether you use RSI, ROC, MACD, etc most of the indicators will essentially give similar output. Unless you are an expert one can rely on 14 periodicity. A period should be ideally selected based on Time Cycles.

Divergences: A positive divergence occurs when prices make lower low but RSI makes higher low and a negative divergence occurs when prices make higher high but RSI makes lower high thereby indicating the up move is on less momentum and the strength is waning out. 

Below we have shown 120 mins chart of HDIL (along with RSI):

HDIL 120 mins chart:

As shown in chart, RSI is signaling positive divergence and negative divergence at a various point of time. This type of signal cautions trader that prevailing trend may change. However, waiting for the positive or negative price confirmation is the key at crucial levels.

We have been using RSI in our trading advisory services along with Elliott wave principle. We publish daily research report on Nifty and Equity Stocks which has charts and explanation using various studies. To subscribe visit http://wavesstrategy.com/index.php/store.html

Sensex in terms of real money – GOLD confirms ongoing correction!

By Waves Strategy Advisors, For more information visit www.wavesstrategy.com

Sensex in terms of INR does not represent how Indian markets have fared in terms of real money.

Currency is printed by the country’s central bank, which is backed by bonds and other debt instruments and might not necessarily represent the correct value. It therefore becomes necessary to see how stock market has been doing in terms of real money which is GOLD. Sensexin terms of Gold shown below needs little explanation.

Sensex in Gold:

The above chart clearly represents that Indian markets topped out in November 2007 itself whereas the actual index shows a topping action in January 2012. Since then Sensex has been way below its life time highs and so are majority of the stocks. Even when actual Sensex recently touched 4 year’s high but many stocks are trading at 52 week’s low. …… Not only that this chart has been following precise Elliott wave counts and pattern.

Time Cycles (shown in actual report): If you remember we have been talking about 69 days time cycles working brilliantly for catching tops and bottoms for short to medium term. Infact, Sensex in GOLD is following ……. days bottoming cycle precisely. And to my surprise as well the bottom comes near ……. This is in sync with currency cycle as well..

Price ROC: is also showing one very important pattern and this indicator should provide leading signal.

The upcoming issue of “The Financial Waves Monthly update” will have indepth analysis onSensex in GOLD and path ahead. To know the short term direction get access to “The Financial Waves Short term update” that has Nifty with 3 stocks and Elliott wave counts. For subscription please visit http://wavesstrategy.com/index.php/store.html

Applied Elliott wave, Channels, Patterns on BHEL

By Waves Strategy Advisors, For more information visit www.wavesstrategy.com

BHEL, is one of the shares which broke 2008 lows near 200 in the start of 2013 and moved lower till 100.

In this kind of downtrend it is very challenging for trader or investor to catch a bottom. However, we were very accurate in catching the short term bottom.

Below we have shown extract from the daily research report of BHEL along with 120 mins chart which we had published on 19^th September, 2013:

BHEL 120 mins chart: Showed on 19^th September 2013

Happened so far:

Wave Analysis:

On 19^th September 2013 we mentioned that “For BHEL, prices respected the inverted head and shoulder pattern very well, moved higher and touched 146. Yesterday prices were down by almost 4% but that seems to be completing wave ii on downside.

Above we have shown daily chart (showed in actual report) of BHEL, intermediate wave ……. ended near 100 levels and started moving higher. This can be very deep retracement if indeed wave …… of a very higher degree has ended. From last 3.5 years, prices have tried many times to cross 50 days EMA but it was unable to sustain above same moving average for longer period and  continued the downtrend. This time we have to see if prices can sustain above this Moving average.

Stock completed wave a or i near 145 and has moved down in the form of wave ii. ……… We are closely watching the price action if the characteristics of rally confirm this.

In short, as long as 120 is intact on downside we expect uptrend to resume anytime and move above ………….

Prices sustained above in level mentioned in our “The Financial Waves STU” – report dated 19^thSeptember, 2013 and today trading near 147.

We use simple technical analysis along with Elliott wave counts to catch an upcoming price movement.

To get full research on Nifty and 3 stocks along with charts and detailed explanation subscribe to our daily research report “The Financial Waves Short term update”. We have even shown daily chart of BHEL from 2005 to 2013 with Elliott wave counts to get a long term picture. For subscription please visit the Store page or click here: http://wavesstrategy.com/index.php/store.html

Nifty: Understanding and interpreting NEWS and if it carries predictive value!

Nifty movement has been extremely volatile over past few weeks. It is a tendency of traders to search for news that justifies their stand.

A person having long position will try to search for news that justifies his stand and the person having opposite positive will search for bad news impacting the market and both of them will feel little relieved after reading the news that favors their stand. This happens with everyone and that is why news are not objective ways of trading. Let us understand the news which was going around at the top of January 2008 and the bottom near March 2009…

Some News analysis:

Following is the news that we found before the major top of January 2008:

Dun & Bradstreet: The Indian economy is one of the fastest growing in the world. Since liberalisation, it has transformed into one of the most attractive destinations for investments and businesses, backed by its abundant manpower base, varied natural resources, and strong macroeconomic fundamentals. Before the emergence of the global credit crisis in 2008, the Indian economy recorded a 9.5% CAGR over FY06-FY08. Following the crisis, it saw broadbased recovery. Due to the country’s limited dependence on external demand and strong and expansionary monetary and fiscal measures, the global financial crisis had a relatively muted effect on the economy.

Google search shows date as 15^th January 2008, just 4 days prior to markets hitting lower circuit.

Now let us see what was happening in January to March 2009, just before one of the strongest uptrend:

Satyam scandal came just 2 months prior to the major bottom was formed and pessimism was at peak.

Satyam Fraud May Delay India Economic Rebound, Limit Investment

By Kartik Goyal - January 14, 2009 14:44

The loss of confidence may make it harder for Indian companies to secure borrowings from overseas to fund investment, which accounted for about one third of economic growth in the quarter to Sept. 30.“This has happened at a very crucial time when the economy is facing a slowdown,” said ShubhadaRao, an economist with Yes Bank Ltd. in Mumbai.

Investors Flee

“These sources of funding have dried up as overseas investors have fled and confidence in equity markets has evaporated,” she said.Foreign investment into India was already slowing before the Satyam revelations, as the world’s worst financial crisis since the Great Depression prompted funds to withdraw from emerging markets.

Contrary to this, the world markets formed major bottom in March 2009.

Standard & Poor’s said Feb. 24, 2009 that the nation’s credit rating may be cut to junk as government debt is reaching a level that’s “not sustainable.” S&P reduced India’s rating outlook to negative from stable.Mukherjee said the rating company’s move was “not unexpected,” adding that the global downturn “requires extraordinary steps from the government.”Does this sound familiar?

The case in point is news can be very deceptive and exactly at the wrong time. We are not saying negative growth outlook, poor earnings or worse GDP data means stock market will rally but it does mean that all these parameters lack the stock market that is constantly thriving to see the future! This also gives us more perspective on the overall “Economic Cyle”.

We will touch upon this section in more detail along with the Economic cycle analysis, GDP chart, PE ratio, News analysis, etc in the forthcoming issue of monthly report – The Financial Waves Monthly update that shows long term forecasts.

The above excerpt is picked up from “The Financial Waves Short term update” that shows Elliott wave counts along with other technical analysis studies which provide one of the objective ways to look at the ongoing market action. This research report is delivered directly in your mailbox everyday morning before market opens or can be accessed from the client’s login page as well. For more information write to us at helpdesk@wavesstrategy.com or call on +91 22 28831358 / +91 9920422202. Visit  www.wavesstrategy.com

Sensex: Is this start of next Bull trend? But let’s not pull the trigger yet!

Sensex hits highest levels since November 2010. Nifty marks biggest 1 day gain since May 2009 which was the up move post election outcome.

In order to determine major trend of the market it is important to see its monthly chart. This chart helps us to determine if the major trend of the market is indeed changing.

We can see that over past 3 months prices have been constantly closing below the previous months’ close but in current month so far prices have managed to cross above not only previous 3 month’s high but previous 3 year’s high. 

A very simple technique that helps to understand the trend is to see if the current bar close is below or above the previous bar’s high or low respectively. The current bar looks like will give a monthly closing above previous bar’s high thereby giving first confirmation that the major trend has probably changed from down to up. Strong trending moves starts with formation of higher highs and higher lows. Sensex has reversed this trend in current month. The high during August is at 19560 levels. A monthly close above 19560 has resulted into an uptrend. Sensex has now approached very close to the upper trendline that connects the monthly highs since 2008.

Sensex Monthly chart:

We have shown the above chart on 11^th September itself in our daily research “The Financial Waves short term update” with both preferred and alternate possibilities.

On 11^th September 2013 morning itself we have mentioned the following - Nifty / Sensexregistered one of the biggest gains seen only in May 2009 when markets closed circuit up. The daily chart of Nifty itself shows the size of the bar we have seen before. Seeing a move of more than 200 points was a rare thing before on downside, let alone a move of more than 200 points on upside. Such sharp change in single day is always going to provide very less reaction time as we have been constantly saying. The Gap up opening on Sensex broke the 200 days Moving average on upside, the later rally broke 200 days Moving average on Nifty, prices moved beyond the cluster of resistance levels placed at 5850 – 5880 without much hesitation, broke above the previous month high and achieved the right shoulder target near 5880 – 5900 levels. Such sharp up move along with Gapping action seen since 5400 is an impulsive behavior and not corrective…..In short, the trend is overall positive. If market starts sideways action it will be important to see if the overall breadth starts deteriorating or starts improving drastically. An improvement will increase the weightage towards positive breakout above 20500 on Sensex near 6100 on Nifty”

On 11^th September 2013, Sensex was trading near 20,000 levels and today it has crossed above 20500 levels.

So is it time to pull the trigger for long term new bull trend???

We would not get too excited here and will keep our emotions under control. It will be necessary for prices to give a monthly close above 20500. Along with bigger degree charts it is extremely important to see the smaller time frame movements for good risk rewards. We are closely watching the short term wave structure and constantly keeping our subscribers aware of the ongoing trend.

Indian markets are at extremely crucial juncture. Do not miss such important inflexion point which is probably occurring after whole 5 years!!! You can simply subscribe to “The Financial Waves Short Term Update” and see for yourself why we are saying this is make it or break it scenario for years to come. Even if we are wrong the risk simply dwarfs the reward that you can get. For subscription option visit http://wavesstrategy.com/index.php/store.html

Elliott wave: Nifty example of Applying Advanced Elliott wave concepts and GAP analysis

The following is a part of the research picked up from the daily research report “The Financial Waves short term update” by Waves Strategy Advisors 

Bottom Line: Nifty had a Gap up opening of almost 80 points but failed to sustain it near 5950 levels and closed negative.

Nifty had a Gap up opening of almost 80 points and prices rallied towards 5950 levels. This is above the level of where wave iii ended. Thereby wave v met the minimum upside criteria. Prices reversed after touching 5950 and closed the entire Gap up opening. This was the 3^rd Gap up since the start of impulse pattern from 5400 and was filled indicating it to be an “Exhaustion Gap”.

We are showing Nifty 10 mins chart (in addition to daily and 60 mins chart and 3 different stocks shown in actual report) that clearly shows an impulse pattern. A few guidelines of impulse patternsuggest that

Guidelines / Rules from Advanced Elliott wave concepts and Neo wave:

-    Atleast one wave should be near 1.618 times the largest wave. In this case wave iii is almost equal to 1.618 * wave i.

-    Wave ii and iv should alternate in as many ways as possible. We can clearly see alternation in terms of time, pattern, complexity

-    Wave v on upside should move with lesser momentum compared to wave iii most of the times when wave iii is extended. We can see negative divergence between end of wave iii and wave v on hourly scale.

-   Wave v should tends towards equality with wave i in terms of price and/or time. We can see that wave i was just a Gap and so is wave v. In terms of price wave v did not make equality with i but managed around 50% of wave i. However fulfilling the time guideline.

-   The confirmation that wave v is over is obtained on break of ii – iv trendline which happened yesterday along with complete retracement of wave v in faster time. Both of these conditions are satisfied yesterday itself thereby confirming that wave v top is in place and prices have started the retracement of the up move from …………..

This correction on downside is going to provide more vital clues to the overall health of Indian market. The up move has taken almost 7 days and so correction should last atleast…………….before uptrend can resume. Failure to adhere to this guideline will indicate some other pattern is probably developing. Also the correction should not retrace more than 61.8% which is near …….. So we should see a range bound movement between ……………. atleast for ??? days before expecting any trending move.

We have only listed a few guidelines above and there is much more to it. The predictability increases during impulsive waves and reduces during complex corrections. But we are aware for how long this correction is going to last and what is the threshold level till the correction can go on. It gives us a very specific scientific prescription to look at the markets. Positional traders can now take  breather and intraday traders now knows which direction to bet.

Subscribe to daily research report for knowing not only the price range but also the number of days this correction can last. Also we have a 2 days training program scheduled in Mumbai on 12^th& 13^th October 2013 that will clearly explain each of the above concepts in addition to very important channeling techniques, price and time concepts picked up from Advanced Elliott wave –Neo wave not as a rule but as a guideline - A hybrid technique! That will assist you in forming your own trading strategy… For more information visit www.wavesstrategy.com

Ashish Kyal - View on Gold, Sensex, IT & Rupee relation in Economic Times of NBT

Gold rally in India is not sustainable since it is only local and not global!

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.

A true rally in Gold happens only when we see Gold move up against all the major currency pairs across the globe. Gold is true money and not a single currency has the capability to measure its true value. Also to understand the performance of this precious metal it is important to see its performance against well known currency from developed nations.

The recent bounce back that we are seeing is just a pullback of the down move from 2012 to 2013. During this pullback Gold in INR has touched life time highs due to sharp depreciation in INRand not because the major trend of Gold has resumed on upside. Gold in USD, AUD, GBP made top in 2011 itself. Gold topped out in EUR terms in 2012 and is substantially below the high levels. This is going to be a dangerous scenario for Gold loving country like India since people look at it only from INR perspective and fail to appreciate that Gold movement currently is just localized and not a Global phenomenon. So we think the recent run up in MCX Gold towards 35000 levels is not a true rally but a bull trap!

Sensex and Rupee movement over past week!

Sensex managed to cross above 19560 levels which was previous month’s high and showed one of the strongest move seen since past 4 years. Prices also took out 200 days Moving average with a Gap up opening on 10^th September and gained by more than 700 points in single day. Banking index and stocks from Capital goods sector like L&T, BHEL showed very strong movement and took index towards 20,000 levels. The overall breadth of the market also remained positive.

Indian Rupee also showed substantial improvement with USDINR moving from the lifetime levels of 69 to near 63 in just 5 days. We will not be too optimistic about this move since it has happened over a very short period of time and we require more stability in Rupee. A range bound consolidation is important for companies to start marking their products and forecasting their growth in more predictable fashion.

Sectoral analysis:

Banking sector after showing one of the worse performance over past few months has showed good strength since past 2 weeks. Apart from Banking stocks, Auto and IT sector continued to outperform markets. Tata motors gave very strong breakout from the consolidation zone of 320 and 270 on 10^th September. This stock touched life time highs when majority of the stocks on BSE are trading near their 52 weeks’s low. Even IT sector has been constantly outperforming with TCS hitting life time highs and Infosys giving positive breakout from range bound movement for more than a year. This clearly indicates that inherent strength lies in IT and Auto space which are making new 52 week’s high.

Does Rupee decide trend for IT stocks?

Many people are under the impression that the depreciation in Rupee is the reason for IT stocks to outperform. But this is not correct. There are many things we believe but it is baseless. In 2013 itself, TCS has rallied by almost 65% whereas USDINR depreciated by only 25%. Food for thought is during the world crisis of 2008 USDINR depreciated by more than 30% whereas during the same period the IT major TCS also fell by almost 50%. Rupee is one of the risk components for IT companies but not the core business. IT companies look at Rupee not from generating better revenues but from reducing the risk exposure. So we think IT sector can continue to outperform over long run irrespective of Rupee movement!

Week ahead:

Sensex has now managed to cross the first hurdle of 19560 level and also closed above 200 days Moving average. After such strong gains within short period of time we can expect some consolidation and range bound movement between 20400 and 19300 levels in current week. A weekly close above 20500 will be important as it will break the important resistance line valid since past 5 years. The monthly tops of 2008, 2010, 2011 and early 2013 have reversed from thistrendline. A decisive close above this trendline will be a first sign that a bigger and stronger trend on upside is on its way!

For more information on daily research reports visit www.wavesstrategy.com

Useful for: Gold Traders, Commodity Traders, Commodity Investors, Stock market traders, Positional investors, Currency traders, Inter market analyst

Related to: Inter market analysis, Equity market, Currency markets, Commodity markets, Rupee, INR,MCX Gold, IT sector

Elliott Wave Training along with Price and Time Concepts!!!

Does any one of the following happen to you?

• You buy stock on the basis of good news or better than expected result and price of the stock still keeps falling after you take the long position?
• Why does market moves in your favor but only after hitting your stoploss?
• You are always out of the market during best of the trends!

If your answer to any one of the above question is YES, then you belong among 80% of crowd that faces similar situations every day. One of the most common requests we get from subscribers is that can you teach me how to look at a chart and find opportunities for myself?           

Our trading course on Elliott Wave will teach you how to identify and trade those opportunities. Whether you are Intraday or Positional trader or investor investing in stocks, commodities or forex, futures or options – you get a practical trading education that you can apply immediately. It is plausible to forecast freely traded markets with high accuracy but provided you have the understanding of necessary technical tools.

Register yourself for the 2 days training session and learn the practical way of applying Elliott wave analysis.

About Speaker:

Course conducted by Ashish Kyal - Ashish Kyal is a Chartered Market Technician (CMT)– Degree provided by Market Technicians Association (MTA – USA). He writes for MTA newsletters and is a frequent speaker on business channels like Zee Business, CNBC TV18. He is a regular columnist for Economic Times section of Navbharat Times, a leading newspaper in India. He has been interviewed by Swiss Business Channel on Indian Economy. Ashish carries vast experience of analyzing World Equity and Commodity markets using techniques like Elliott Waves, Time Cycles, and momentum tools. He frequently speaks at financial seminars like Financial Technology, Market Technicians Association (MTA - USA) Association of Technical Market Analysts (ATMA)

Where and when is the course?

The training is at Hotel Grand Sarovar Premiere, Goregoan, Mumbai on 12^th-13^th October 2013. This belongs to 5 star category having chain of international hotels and the fees are including Tea / Coffee and Lunch.

Registration Fee:

The charges for the Training is Rs. 8000 + 12.36% Service tax = Rs.8990/- Existing subscribers to any of our research products can avail a discount of 10% if registered before 25^th September 2013. Registration is on first come first basis as there are limited seats.

How to Enroll?

To register for the training using either Credit Card or Netbanking visit http://wavesstrategy.com/payment/ and mention Product as “Training” and period as “1”.

OR

Fill in details at http://wavesstrategy.com/index.php/contact-us.html and we will get in touch with you

OR

Write to us at helpdesk@wavesstrategy.com /call us at +91 9920422202 /+91 22 28831358

MCX Crude: Trading using Elliott wave counts, RSI but SYRIA!!!

CNBC, Aug. 27 Crude Bolstered by Syria Jitters. The conflict over Syria threatens to create new geopolitical fissures that recall the days before the 2003 Iraq invasion."

Reuters, 7^th September U.S. crude oil futures settled on Friday at their highest level in more than two years as investors rushed to buy amid concerns a possible military strike against Syria could cause oil prices to spike

However, the chart below exposes a flaw in this logic, which is: Crude oil prices actually broke out of a multimonth triangle pattern above$100 in late June 2013, not in the month of August 2013 and provided the positive confirmation much before than the news came out.

Nymex Crude weekly chart

MCX Crude daily chart:

Wave Analysis:

In MCX Crude we saw triangle pattern breakout on upside in the month of May 2013 and moved higher. After the pattern breakout, prices breached six years high of 6480 and made life time high of 7784. Above both the charts clearly indicates that rally happens in crude before the news.

This rally in crude shows the power of technical analysis which helps us to catch the impulsive move in MCX Crude. Do not wait for the outcome or news or else you will miss the strong trend.

RSI on MCX Crude also shows reversal in indicator everytime it touches 70 – 80 zone. But this does not necessarily mean to short at that level. It is important to combine other short term techniques from trading perspective.

Trade objectively and get comprehensive research on MCX Crude and also in MCX Gold, Silver and Copper in our commodity report – The Commodity waves STU published on daily basis.  

Intraday traders can also avail our calls on all 9 commodities traded on MCX exchange through SMS or Yahoo messenger with proper followup and efficient Risk reward ratio.

For more information write to us at helpdesk@wavesstrategy.com or call us on +91 9920422202 / +91 2228831358 or visit www.wavesstrategy.com

Sensex / Nifty trading strategy by Ashish Kyal - Zee Busines and Economic Times section of NBT

Sensex / Nifty trading strategy by Ashish Kyal - Zee Busines and Economic Times section of NBT

http://wavesstrategy.com/index.php/free-articles/stocks/576-sensex-trading-strategy-by-ashish-kyal-in-economic-times-section-of-nbt.html

Above is Trading Strategy on Nifty on Zee Business by Ashish Kyal

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.

Sensex should cross 19560 levels to maintain upside momentum!

Indian currency movement:

India continues to stand independently in the Global markets with Indian currency the worse performing asset class among Asian peers over past month. Prices of Gold has touched life time highs in terms of INR as the currency hits life time lows i.e. USDINR made life time highs. Indian currency has exhibited one of the strongest trends over past 1 month. The depreciation in INR is not only against USD but also against other major currencies like GBP, JPY, EURO. USDINR touched near 69 levels in August end but currently we have seen some stabilization from there. We can expect this currency pair to consolidate in the range of 63 to 67 atleast for few weeks before the next move will start probably on upside.

Sensex medium term prospects:

Sensex monthly candle helps us to understand the current trend of the market. We can see that over past 3 months prices have been constantly closing below the previous months’ close, let alone close below previous high.

A very simple technique that helps to understand the trend is to see if the current bar close is below the previous bar’s high. As long as this scenario continues the trend can be assumed to be down. Strong trending moves on downside starts with formation of lower highs and lower lows. Currently we have bearish monthly bar in August and prices are failing to close above previous month’s high. The high during August is at 19560 levels. So in the current month as long as this high is not taken out and preferably on closing basis i.e. the month end close should be below 19560 our medium term outlook will be bearish. A monthly close above 19560 will result into either sideways action or an uptrend. However, 20500 is a very strong resistance which is thetrendline that connects all important tops since 2008 and so we can expect range bound movement unless 20500 is taken out decisively. So medium term trend for Indian equity is down.

Bank Nifty direction:

Bank Nifty showed serious selloff in August but with onset of September we have seen strong bounce back from 8500 levels. 8200 is very important support of trendline valid since start of 2002.We can expect Bank Nifty to show some continued strength till 10300 as long as 9300 is intact on downside. Bank Nifty should show some consolidation in current week.

Short term direction: Sensex has shown good pullback from 18200 levels. Prices bounced back from the day new governor Rajaram took over from Subbarao. This means that markets have high expectations from the new RBI governor and we have to see if he can live upto the expectations. However from technical perspective 19500 will be a very important resistance and 18500 as important support. Also markets are changing direction after every 3 to 4 days of rise. Let’s see if it continues this week as well.The intraday volatility of markets has increased drastically and average movement has become around 500 points which was merely 250 few months back. During such times it is important to trade cautiously and systematically using objective techniques rather than trading on just gut feeling!

As we publish this article Sensex has already broken above the previous month high of 19560. This can be the trend changer and for more information on Trading strategy on Nifty /Sensex along with stocks and Elliott wave perspective on daily basis write to us at helpdesk@wavesstrategy.com or call us on +91 22 28831358 / +91 9920422202 or visit www.wavesstrategy.com

Sensex / Nifty Elliott wave continues to show complex movement

The following was published on Friday morning research report "The Financial Waves Short term Update" by Waves Strategy Advisors. For more information visit www.wavesstrategy.com

Bottom Line: Nifty had a strong Gap up opening of more than 100 points, forming a V shaped recovery!

Data as on 5th September:

Sensex daily chart:

Note:

“The Monthly Financial Waves” is now published. It has touched upon following: USDINRimpulsive move on upside, Sensex - Why the long term trend has changed to down since past 3 months, BSE Smallcap index forecast, India GDP growth vs. Sensex, Banking Index, DJIA biggest ever negative divergence, Gold in 6 different currencies shows major trend is down!

A monthly publication shows the long term charts using Time Cycles, Elliott wave analysis, Channels, Price ROC, Time analysis to give an overall perspective and the path Indian markets should follow in this decade.

Subscribe monthly research report “The Financial Waves Monthly update” and get access from medium to long term analysis on Sensex, Bank Nifty, US markets – DJIA, USDINR and Gold. To subscribe visithttp://wavesstrategy.com/index.php/store.html

Nifty daily chart:

Nifty 60 mins chart:

Wave Analysis:

In previous update we mentioned that, “This ratio indicates that the trend lasted for 5 days and covered 50 points daily but on extreme basis it is lasting for 1 day and covering 200 points. So in totality the output is same but the equation has totally changed!In a nutshell the increase in price movement with reduction in reaction time has made trading extremely challenging even for the best of the traders which is independent to whether you are long or short.”

Nifty had a strong gap up opening of more than 100 points and prices opened just above the important level of 5540. This time as well the strong down move is completely retraced back in a V shape recovery. After the opening, prices stayed in a range of 5600 and 5550 for the rest of the day.

We are showing Sensex chart along with an important channel. Sensex seems to have more respect for important trendlines than Nifty. But this time we can see that Sensex also broke the channel decisively on downside but only to reverse back later and re-enter into it. This will again be counted as false breakdown.

One more technique that we have applied to confirm that direction of bigger trend is difference of Moving average. When you take difference of important moving averages which provides support and resistance to prices the difference of them behaves like an oscillator and moves between the range. This technique helps for mean reversion and whenever the differences touch extreme values we can expect reversion back to 0. Apart from this one more important thing we come to know from this is the level from where the reversion is happening. We can see on Sensex chart that this difference touched the level of -600 which was only seen during the entire fall of 2011 and then it was not seen during the rise of 2012 where the extreme level was only -500. This indicates that the market might have started a bigger downtrend and current bounce back is upside correction. However, we have to apply other techniques like wave counts, Fibonacci ratio to understand till what level this bounce can happen.

As shown on Nifty daily chart, volumes continued to be more than average of over past 2 years. This can happen in case of accumulation or strong distribution which presages start of a strong trending move very soon.

The short term chart suggests that prices ended w-x-y correction and wave y formed an expanding triangle pattern. As we said before these are very rare and challenging pattern with false breaks on either sides. We think that entire wave y was expanding and ended near 5400 as an unorthodox low. We are now seeing an upside correction of the entire down move from 6090 to 5118. There re 2 Fibonacci retracements one from the orthodox low and other from unorthodox low of 5400. 76.4% and 61.8% are coinciding near 5850 level which is also the first target of short term Head & Shoulder patternas shown having neckline near 5650 as of today and increasing.

Bank Nifty has infact bounced back from near the important trendline valid since 2001 which we have shown in long term forecast in the monthly research. On downside 7920 is extremely crucial level for Bank Nifty from long term perspective.

In short, we can expect short term bounce back first towards 5750 levels. However, the concern remains is PCR which is still at 1.5 and Sensex is just retesting the lower trendline (red) of wedge pattern. Let see if the uptrend also terminates in just 2 to 3 days again with a V shape fall or this time the trend lasts little longer than the norm seen over past 1 month. Continue to use strict money and risk management strategies during such times unless a clear trend emerges!

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