Thursday, July 17, 2014

Rpower: How to interpret impulsive and corrective waves?

The below chart of Rpower gives a detailed view on how to find out impulsive waves?
It is a classical example that shows clear 5 waves on upside with faster retracement of wave v confirming a reversal. Also note that wave v is truncated which suggests that we should see a sharp move on downside which is its typical post pattern implication.
Reliance Power 60 mins chart:
There are 3 important rules to define an impulse pattern:
1.    Waves 2 should not retrace more than 99% of wave 1. Advanced concept suggests that wave wave 2 should not retrace more than  61.8% of wave 1.
2.    Wave 3 cannot be the shortest of wave 1,3 and 5.
3.    Wave 4 should not enter into territory of wave 1. As per Advanced concepts wave 4 should not enter into territory of wave 2.
All of the above rules are being followed.
A completion of 5 impulse on upside is confirmed once wave v is completely retraced in faster time.
This guideline helps us to confirm that an important top is in place.
In addition to above, below is the interpretation of the stock published today morning in “The Financial Waves short term update”
Wave Analysis:
Power sector continued to be under pressure as even in yesterdays strong up movement we did not see much relief rally in power stocks. It is interesting to see how stocks behave despite all the positive news revolving around infra and power projects. On Budget day, a lot was expected and was delivered for Infra sector but still this was the most underperforming sector in the recent down move post Budget. We continue to believe that the news or events cannot be used to trade objectively.
Reliance Power had been underperforming since the start of June 2014 after it touched the intraday high near 110 levels. The stock formed wave v below the previous wave iii and is therefore known as truncated pattern. A truncation leads to sharp down move which can be clearly seen in the above daily chart and prices touched 90 levels in just 3 days of fall from the high of 110.
As shown on daily chart, (shown in actual report)
The 60 mins chart, shows the impulsive subdivisions clearly and now prices are in wave b. Any move back below 90 will confirm that wave b is over and wave c on downside has started towards 80 levels.
In short, from trading perspective it is better to wait for reversal in this stock and broader market on downside. Close below 90 will provide good trading opportunity for a move towards 82 – 80 levels on downside. On upside 102 should act as a strong resistance.
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