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.
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monthly research report “The Financial Waves Monthly update” and get
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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!
For daily research reports before market opens write to us at helpdesk@wavesstrategy.com or call us on +91 9920422202 / +91 22 28831358 or visit www.wavesstrategy.com
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