How Bank Nifty is providing leading signals for turn in Nifty? Intra-market divergences!

Nifty has moved sharply lower from the highs of 8622 to the recent low of 8381. This move has happened in less than 3 days.

At times it becomes important to look at the other sub-indices apart from Nifty to understand if they are providing clues about reversal in overall market direction.

The below chart is shown in the morning research report “The Financial Waves short term update” along with detailed Elliott wave counts on daily and hourly charts.

Nifty and Bank Nifty hourly chart with divergences:

Wave analysis:

In previous update we mentioned that, “the down move from 8622 increases the odd that Expanding Triangle pattern in wave e may have completed. To confirm the same now move below 8445 is required.”

In the last session post opening near 8550 levels, Nifty quickly entered in the red territory. Throughout the day prices continued the down move and broke the level of 8445 which was the spike low made on RBI meeting day on 4^th August 2015.

From time price reversal perspective, the up move from 8320 to 8622 has taken 8 days and yesterday was the first day where prices gave negative close below the prior bar’s low. So now move below ……….. is required in next ……….. days which will confirm that medium term down move has started with Price Time reversal confirmation.

Nifty and Bank Nifty divergences: Bank Nifty is an important index that is actually leading the fall. Even the bigger top made in March 2015, Bank Nifty formed lower highs when Nifty touched new high at 9119. These divergences are visible not only on the daily time frame but also on smaller degree charts shown above. We can clearly see that Bank Nifty has been constantly providing important negative divergences when Nifty breaks above previous pivot high but Bank Nifty failed to do so even this time.

The above chart also shows one positive divergence when Nifty broke the pivot low but Bank Nifty managed to form higher lows.

These are important indications but have to be combined along with other techniques like Elliott wave and Time cycle. Nifty has now broken important support levels and that too in faster time so far…. Most of the technical indicators are again aligned together after many weeks of sideways action.

To know more on the short to medium term direction of Nifty along with stocks and why we think a trending move is due to emerge using different independent techniques and combining with Time cycles, subscribe to the “The Financial Waves short term update”. For subscription options visit the Pricing Page or Contact US for more details.