Bottom Line: Mr. Rajan continued to surprise
the Bond traders by keeping rates unchanged despite Bond yields easing!
Nifty daily
chart:
Nifty 60 mins
chart:
Wave Analysis:
Mr. Rajan continued to act stringent to curb inflation despite the peer
pressure and kept the key rates unchanged. The bond trader was caught off guard
as the easing bond yields did not help in rate cuts. Since Mr. Rajan has taken
over the bond traders are continued to be surprised. Trust me once we see fall
in equity prices, RBI will be forced to take steps cutting down interest rates.
As falling equity prices is a mirror of how economy is going to perform few
months down the line. Looking at current scenario there is a possibility of
first rate cut to happen in February 2015.
As soon as the policy decision was announced, Nifty entered into green
territory atleast momentarily. This only showed markets have been waiting for
news irrespective whether there will be rate cut or not. The index made a low
of 8504 and traded in the range of 8540 and 8510 for most part of the day.
An interesting observation is that during the entire up trend from 7723
to recent highs there have been maximum of 2 consecutive red bars formation.
Infact, in the entire up move from 5960 made in February there has been only a
few times when there were consecutive 3 red bars and each time this resulted
into increase volatility or deeper retracement either in terms of price or
time. So far prices have formed 2 red bars and it will be crucial to observe whether
Nifty can manage to close above previous close today or not.
Money Flow
index measures volume along with price momentum. It
indicates if money is flowing in or out of the index. It essentially a volume
weighted momentum indicator. As can be seen on daily chart there is a strong
negative divergence when this indicator is making a lower low against prices
making new highs. We have highlighted previous such instances that resulted into
atleast temporary halt in uptrend if not a strong downside correction. A break
below 8460 is important for deeper downside retracement. However, it will be
crucial to watch the 30 levels on Money flow index since everytime it reached
there, prices bounced back on upside. First thing first, it will be crucial to
observe if Nifty can manage to protect the level of 8460 and bounces back on
upside in form of wave (v) of v of c. This wave counts will remain valid as
long as 8670 is not taken out on upside else we will be forced to end wave (ii)
of v at yesterday’s low in form of irregular Flat correction.
In short, Nifty has continued to trade in a challenging environment and
no clear trending direction. Move below 8460 followed by 8430 will be bearish
whereas close above 8560 is necessary for positive trend to resume!
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