Wednesday, August 6, 2014

Nifty moving exactly as expected! Triangle: A phase of confusion

The below research report was published today morning and the fall was well expected. To subscribe the daily research report "The Financial Waves short term update" visit

Bottom Line: Nifty formed another blue bar and continued to move in a triangle pattern. Expect sideways action to continue for a day or 2 more!

Nifty daily chart:


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Nifty 60 mins chart: (as shown in morning report before markets opened)   

Wave Analysis:

In previous update we mentioned that “In short, the trend for Nifty is now sideways with no strong momentum in either side. Many time cycles are slowly turning on upside and so we will change our stand very firmly once 7800 breaks on upside!”

RBI maintained its status quo on repo and reverse repo rate as expected but cut SLR by 50 bps. As soon as the news was announced Nifty turned negative and touched intraday low of 7650 only to reverse later and closed near the high of 7750. The headline will read “RBI stand helps index to close above 7700” even though index initially turned negative after the SLR cut!

The major outperformer in yesterday’s trading session was cement stocks. The top 4 gainers were Ultratech Cement, ACC, Ambuja and Grasim. Each of these stocks was up by more than 4%. Barring yesterday these stocks had a sharp fall over past few days. It has become extremely challenging to determine the sector that will outperform during the day and it has been rotating on daily basis. Such action cannot continue for long and eventually a clear breakout will result into a few sectors leading the trend!

As shown on the short term chart, the up move touched 7750 level and closed exactly at the trendline resistance level. This up leg is probably wave d of triangle as expected and now we should see minor retracement on downside in the form of wave e which can complete in a day or 2. Trading a range bound market can be very challenging and it is advisable to wait either .... or ....... to break for a clear trend to emerge. Looking at the sideways action ongoing since July after the up move till 7808 there is high likelihood for positive breakout once wave e on downside is complete.

In short, the probable path for Nifty is as shown but as the overall trend continues to be sideways it is better to wait either ...... or ..... to break decisively! Advance decline ratio is also showing some improvement with outperformance from high beta sectors. Let us see if this continues for 2 more days which will provide vital information for direction of breakout!

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