Nifty RSI, Money Flow index, Channels all getting aligned together AGAIN! Stay alert!!

Bottom Line: Nifty managed to retest the previous pivot high near 8250. Short term trend is positive but the up move looks to be matured stage!

The below research is published in today morning research report "The Financial Waves short term update" by Waves Strategy Advisors. For subscription to daily Nifty and stocks Elliott wave counts visit http://www.wavesstrategy.com/Pricing.aspx 

Nifty daily chart:

 

Nifty 60 mins chart:

Wave analysis:

In previous update we mentioned that, “Second standard correction has been forming Extracting Triangle pattern where wave e (in red color) is ongoing. For this pattern to be valid wave e should not cross above 8300 levels.”

In Fridays trading session Nifty opened on Flat note and consolidated protecting the low of prior bar at 8130 till 1.30 pm. Post that there was sharp move on upside and Nifty closed near 8240 level. Bank Nifty finally showed upside strength in last day of the week and gained more than 1%.

Before August 2015 Midcap and Smallcap index outperformed and these sectors used to gain more than 2% or 2.5% during the day however the same sectors are gaining less now if we look at daily percentage gains. For example, in the last session Midcap and Smallcap has gained 0.50 and 0.20% respectively. This suggests that sector specific momentum has helped Nifty to move higher and hence one should not be too optimistic given the corrective nature of rally from the low made at 8690. Nevertheless, over near term prices have continued to protect the low of prior bar. So as long as we do not get close below prior bars low which is now at 8147 level daily bias will remain positive.

On daily chart we have shown Money Flow index (MFI) which takes into consideration participation of Volume in the ongoing trend. It is prudent to look at such indicators during the crucial juncture. We can see that in the past MFI has provided early warning signal. The same can be seen when Nifty made top at 9119 level and MFI exhibited negative divergence suggesting distribution was ongoing. Then again at the low of 7940 which was made in the mid of June 2015, MFI showed positive divergence thereby suggesting accumulation in that period. During the range bound action from July to mid of August 2015 in between 8655 to 8350 level, MFI exhibited decrease in Volume participation on upside and volumes increased during the down move. Coming back to current situation, in last session Nifty made high at 8246 levels however this is not confirmed by MFI as it is still struggling. This provides negative divergence so far.

Volumes are decreasing with the rise: During distribution phase volumes tend to reduce on upside and increases during the fall. MFI actually measures this objectively. Naked observation of volume also suggests reduction in volume over past few days. A positive breakout on reduced volume raises doubts on validity of a breakout. This week is going to provide more clues about overall maturity of trend.

Looking at channel resistance and Elliott wave pattern: Prices have been behaving as expected and this was also mentioned in past few days of research that one leg on upside is still pending. As per wave perspective, minor wave e of Extracting Triangle pattern is ongoing, so as the time goes, momentum will dry out on upside. Prices also have important resistance of channel which is now placed in between 8280-8300 level. We will look for alternate wave counts only if prices close above 8400 level which is the big red channel as shown on daily chart.

In short, Nifty has been reaching the inflexion zone. Strong momentum above 8300 is required to open further positive possibilities.  Any sharp move below 8145 followed by 8085 will confirm start of medium term downside trend.

Nifty has been moving very much in sync with Time cycles and Elliott wave. It is time to stay alert again and not get carried away. Prices are approaching the inflexion area and slowly the indicators are getting aligned… To ride the next BIG trend subscribe “The Financial Waves short term update”. Visit Pricing Page or Contact US for more details.