Why Nifty fall below 6665 did not produce momentum?

Bottom Line: Nifty broke below 6665 level on Wednesday but managed to close near 6700 levels. Move back below 6665 to resume downtrend! For subscription to such daily research report "The Financial waves short term update" visit http://www.wavesstrategy.com/index.php/store.html

Nifty daily chart: 

Nifty 60 mins chart:

Nifty 10 mins chart:

Elliott Wave Analysis:

In previous update we mentioned that “In short, break below 6700 followed by 6665 will be crucial to continue the current down move which will also turn medium term trend on downside. Any supporting activity from here will result into range bound movement between 6700 and 6850 levels!”

Nifty had a positive opening on Wednesday and prices quickly touched an intraday high of 6780 level. This was the same level which acted as resistance on prior 2 days as well. The selling pressure started building up near that zone and by 2^nd half the index turned negative. Infact, the level of 6665 was breached only momentarily and prices again rallied back and closed near 6700. The volatility during the day was very high and movement was fast. This can be considered as sample of movement we can see during the votes counting day on 16^th May but the magnitude will be much bigger.

The close of Wednesday was also exactly on the Andrews’ Pitchfork median line but move back below 6665 will confirm the break. The 20 days Exponential Moving average now stands broken. In a video update released few days back we highlighted why this average is important and due to its retest on 16^th April the momentum on upside has reduced. Also the number of consecutive red bars has increased from 2 to 3 to now 4. If the sequential increase in negative close has to continue then we can see a positive close or blue bars for couple of daysand then the next set of correction can contain 5 consecutive red bars. These are smaller customized patterns and can assist in short term trading.

The reason for not turning aggressively bearish even when 6665 was momentarily broken is based on the fact that the internal structure of the fall from 6870 is corrective in nature. The move is perfectly channelized between the blue channel and overlapping. So this cannot be an impulse down leg. There are times when it is important to observe not only break of important levels but also the pattern which has broken it. For example, a break of important channel support during triangle formation will not carry much validity or technical importance. Similarly the current break of 6665 by corrective pattern on downside indicate even though the trend is negative it can be slow and steady rather than severe selloff which is seen in impulsive move. Case in point is the trend remains negative as long as 6780 is intact but there will be short term pullbacks as shown on 10 mins chart.

Alternate possibility: The corrective nature of current down move also raises the alternate possibility that the x wave is over at the low of 6665 and not before and current down move is wave b of 3^rd corrective. These alternate markings are shown on 60 mins chart.

Nifty 10 mins chart:Nifty 10 mins chart shows that the move down from 6870 to 6665 is perfectly channelized and can be triple corrective pattern. Trading this pattern can be difficult as each of the down leg is retraced back by intermediate upside corrections. However, as long as we see a close below previous day’s high the weekly trend will be negative. This means that 6780 which is Wednesday’s high is going to be important resistance now but the short term pull back cannot be ruled out.

In short, as long as 6780 level is intact on upside the trend remains negative. Due to corrective nature of fall and not impulsive the selling pressure can slowly reduce and break of 6665 might not produce significant or violent move on downside. Also given the once in 5 years event which is now very close a clear trend will probably emerge post 16^th May. If selling pressure intensifies on break of 6665 levels we will show downside projections over medium term but for nowtrade cautiously!

Subscribe NOW to the daily research report "The Financial Waves short term update" and see yourself where Equity markets and stocks are headed from here. For more details visit http://www.wavesstrategy.com/index.php/store.html or Contact me at helpdesk@Wavesstrategy.com