Nifty: On inverted scale: A different perspective to look at the trend!

Nifty has continued to move higher into uncharted territory. Everyone has started guessing the upside targets probably not on basis of any rationale but mere convictions. If conviction worked that well then why do most end up buying near the top and selling exactly at the wrong time.

Convictions are random and create false hopes at times. It is no different than a Gambler’s fallacy.During euphoric times it is prudent to look at the price movements by applying not only advanced concepts but also basic concepts of technical analysis.

Below is chart of Nifty but with a different perspective. An inverted chart! This chart was shown in our research report “The Financial Waves short term update” few days back on www.wavesstrategy.com.

Nifty daily chart – inverted scale

Wave Analysis:

In previous update we mentioned that, “In short, continue to use reactive method with trend following system i.e. to stay positive unless we see close below 5 days moving average Also stay alert and not complacent like majority because many things are going to align together over next few days”

Nifty inverted scale:We have certain perceptions when looking at an index or a stock during a downtrend compared to the uptrend. We tend to look at a specific pattern when the index has moved sharply lower but majority continue to maintain the strong bullish stand when the same index moves sharply higher. This thought process evolves from the basic assumption that there is a limit to the down move but the up move can continue towards unprecedented levels. Majority of the investors are conditioned to think in this way. Isn’t it a paradox!  Now look at Nifty daily chart shown above in inverted format. Following are a few observations:

(Please note the below reading is based on inverted scale so a positive divergence will actually indicate negative divergence on non-inverted scale. Also observe the scale on the chart which has increasing values down the chart)

The entire move has been in corrective fashion rather than impulsive which is very well within the black downward sloping channel. The support (as scale is inverted) of the channel is now at ……..levels and the down move is in matured stage. It is extremely rare to see a downfall to break the lower trendline of channel on downside itself as the entire move is associated with such loss of momentum and RSI has constantly shown positive divergences. So if we go by the very basic foundation of technical analysis that what has worked in the past will continue to work in future …….However, with passage of time the levels will keep increasing as the trendline is downward sloping.

Nifty hourly chart:As shown on hourly scale prices are currently moving higher in blue channel. As long as this channel is intact the short term trend will remain positive. As mentioned earlier only a close below ….. (shown in actual report)

Indian equity markets have arrived at crucial juncture. These are interesting times when emotional trading takes the front seat and the rational and logical reasoning becomes a passé. It is prudent to avoid a top here but at same time one has to be alert and keep monitoring price reaction near key reversal areas.

To know what is next from here on stocks and Nifty along with detailed Elliott wave counts and pattern analysis, Time cycles, sentiment indicators,etc subscribe now to “The Financial Waves short term update”. For subscription options visit the Pricing page on www.wavesstrategy.com and get instant access to daily research reports.