Nifty Relative strength index (RSI) – A different technical analysis perspective!

The below research is published in today's morning research report "The Financial Waves  by Waves Strategy Advisors. For various subscription options visit http://www.wavesstrategy.com/index.php/store.html 

Relative Strength Index (RSI) is one of the most widely followed technical indicators. Many traders use this in order to understand if the market is in overbought or oversold state and if there is positive or negative divergence.

We take a step ahead in looking at this simple indicator in a very different way and how it helps to understand the trend of the market.

The following excerpt is picked up from “The Financial Waves short term update” our daily research report on Nifty along with 3 different stocks. Read further to know more how we are applying RSI in addition to Time cycles, Channels and Elliott wave counts.

Bottom Line: Nifty broke above the 3 days range but only to re-enter later. The action continues to be subdued!

Nifty 60 mins chart:

Other studies and Elliott wave counts are purposely removed from above chart.

Wave Analysis:

In previous update we mentioned that, “In short, move above 6095 or below 6020 followed by 5950 is important for short term direction. Unless that happens, sideways action will only make traders more complacent exactly before big moves.”

Different way to look at RSI:The daily RSI has again bounced back from 30 levels. This level has worked very well since past 3 years. RSI reading of 22 was last seen during the downtrend of 2008 and then later in 2011. We are keeping a close tab on RSI reading and if the resumption of downtrend can lead RSI towards this level of 22 which will indicate a bigger degree correction on downside

The same concept of RSI when applied to 60 mins chart gives important information. The reading of 20 is seen in the recent selloff. This reading on RSI was observed only during the downtrend when Nifty touched the level of 5118 in August 2013. This further confirms that the up move from5118 to 6355 is complete and the current market will be in sell on rallies mode as long as RSI 80 level is intact on upside. This is a very different way of looking at a very common technical indicator.

In short, we continue to think the medium term trend as down on Nifty but minor positive move cannot be ruled out. Move above 6100 can take prices towards 6140 levels whereas move back below 6050 can result into sideways action to continue. Break of ………. will confirm resumption of medium term trend on downside.

We do not rely on one single indicator for direction but combine it with Time cycle and this time as well prices have turned exactly at the cycle hour. It is at times a thrilling experience to see Cycle theory working to the point. Further along with Elliott wave counts it provides a very strong trading setup environment. Subscribe to “The Financial Waves short term update”by visiting the Pricing Page or Contact US for more details.