February 2016 had been a month of events and news
with market moving in extreme pessimistic environment. PSU Banks were one of
the worst performing sectors until 29th February i.e. the Budget day. Results
declared by most of these banks were indeed very poor with stark rise in NPAs.
The stock prices reacted sharply and started discounting the worst ahead. It
was only later when the trend was due to reverse we saw sharp reversal on
upside.
Budget day continued to act as a reversal day
during a downtrend and this time it was no different. One of the most important
concept that continued to suggest that the downtrend was in matured stages were
Channels.
Pessimism was ruling not only among the retailers
but institutional investors as well as brokerage houses as well. It seems
majority of them sold off their positions just before the B-day at throw away
prices in expectations that much lower levels are on cards and in anticipation
that Nifty is heading towards 6500 sub levels. In fact Nifty movement towards
6825 was a perfect trap on 29th February and post that we have seen a recovery
of more than 650 points now in just 4 days of time. This simply shows the risk
of staying on the wrong side of the market and the risk associated with it.
Figure 1: Nifty weekly chart:
Volumes: As shown in Figure 1 we have seen
significant rise in volume in month of February. Such sharp rise in volumes is
not very often. The black Moving average line on Volumes clearly indicates
change in the underlying dynamics and the same was observed only during low of
August 2013 and lows of 2009. To further
validate this assumption we have used Volume Rate of Change (Volume ROC)
indicator that measures the speed with which volumes have increased. Such sharp
rise in indicator and extreme level is not very often. It was only in 2008 and
2012 that we saw Volume ROC touching such extreme levels. Also in 2012
it was near the top rather than after sustained selling. So the only period
when we saw volume ROC moving towards such extremity was during the low of 2008
– 2009. This further confirms that the dynamics of the market is changing
and the downtrend that started from the March 2015 is probably complete. Also
the methods that work well before might no longer be valid and we should not be
surprised to see a break above the downward sloping channel encompassing the
entire correction.
Confirmation
from USDINR: (shown in
actual research report – The Financial waves Monthly update)
Time cycle……
Nifty Neo wave analysis…….The Diametric pattern as shown in
Figure 3
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