Bottom Line: Nifty broke below the previous
important low and closed deeply red. An important top might be in place!
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Nifty weekly
chart:
Nifty daily
chart:
Nifty 60 mins
chart:
Wave Analysis:
Nifty finally gave away the support zone of 7815
– 7840 and closed near 7748 levels. It had flat opening in
morning and entered positive territory for a while amidst strong global
selloff. Prices touched an intraday high of 7894 and moved in a narrow range
until 1 pm. Post that as soon as 7840 level was broken the selling pressure
started increasing and break below previous pivot low at 7796 resulted into
severe selloff across the board. Midcap and Smallcap indices lost 2.4% and 2.7% during final hour of trading. The structure
had been similar to that of US equity index – DJIA that started the fall in an
overlapping fashion but later break of crucial support intensified the
pressure. A similar possibility has now opened for Nifty as well.
Medium term outlook: Weekly Time cycles has worked perfectly so far that hinted towards October being a topping
pattern and then the selling pressure to intensify. This time we are showing
the weekly chart since 2008 onwards. As mentioned earlier the correction that
started in 2008 is still not over and ongoing in the form of a running triangle
pattern. A few stocks like DLF, IDBI, ADAG group, etc has retraced almost or
entire of the up move prior to elections. This has further confirmed our
corrective wave labeling on the upside which is difficult to digest for a
normal technician. However, Elliott wave suggests that even when the index is
at new high it can still be a part of correction due to irregular behavior or
running correction. The overall pattern and wave characteristic takes
precedence to that of the internal counts. Running
triangle pattern clearly confirms this scenario with wave [D] probably complete at the high of 8160 and currently wave
[E] has started. A monthly
close below previous month’s low at 7840 (that is already
broken for now) will be a strong negative confirmation. If after the Global
odds prices still manage to cross back above 7970 then it will only indicate
few more weeks of positivity before we top out. The
medium term trend has already reversed or is very near to do so!
Short term outlook: A sideways and range bound action on Nifty over past few days had kept the structure
and pattern difficult to predict. During such times use of crucial support and
resistance levels is the key to get the confirmation for direction of breakout.
Yesterday prices broke below the previous support zone of 7815 and closed
deeply negative. This indicates a downside breakout. Also the positive
divergence seen on hourly chart is no longer valid since prices did not
confirm.
We will come out with downside projection once we see a follow-up
negative weekly close that will further hint towards start of wave [E] on
downside. Short term moving average has continued to stay below 20 days average
and as long as we do not see a positive crossover bias will stay negative.
Volatility on a rise: Volatility has continued to increase and this can be just a beginning.
During down moves we can expect sharp deviation of prices from the mean which
is the primary reason for rise in volatility. One needs to stay in direction of
trend which is down as of now in case a big trend emerges and follow trailing
stop method.
Nifty hourly chart shows that the current down move can be wave c or wave
iii with wave b ended as a running double correction in form of w-x-y (red). A
close below yesterday’s low near 7730 will break the channel on downside
whereas a close above 7850 will indicate completion of c near yesterday’s low.
Short term pattern has continued to be challenging given the overlapping
formation and one needs to use prudent risk management level unless a clear
impulsive trend emerges. For existing shorts below 7790 level use 7850 as
trailing stoploss.
In short, break below 7800 confirms the negative bias and follow-up move
below 7730 can intensify the selling pressure similar to that of Global
markets. The correlation will increase across the asset class and global equity
markets and a repetition of
2008 cannot be ruled out. A monthly negative close
below 7840 will add more weightage to this scenario! Stay alert and use prudent
risk and money management strategies to make the most of the trend which might
just be starting!!! Move back above 7850 will indicate a false break…
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