Monday, August 29, 2016

How to trade Nifty Post Fed meet?

Trading Equity and Nifty by looking at various technical indicators like Breadth, Channels, Elliott wave, Net new monthly high lows and more.

Indian Equity Markets has been moving in a range from last few weeks. Traders and investors were waiting for Yellens speech which completed on Saturday last week. Fed has given hint towards the first rate hike since last December. But post the speech there is mixed reaction in Asian Equity Markets.  Nikkie 225 gained 2.30%, Hang Seng index lost 0.45% and Shanghai had flat closing. So the hint towards the rate hike has not resulted in to any knee jerk reaction in Asian Markets till now. Nifty is trading on the flat note as on 1.25 p.m. Now the question arises what should be the trading strategy for Nifty from here on?

We believe that news or event results into short term spikes and post which original trend should start. The Financial Waves Short Term Update covers in-depth research on Nifty with Elliott wave perspective. For us market behavior is most important rather than any news or events. The part of the research is taken from report dated 25th August 2016 which is shown below with Breadth indicators like NSE net monthly highs lows.

Nifty daily chart:

NSE Net Monthly Highs Lows:

Courtesy: icharts

Wave analysis:

In the previous trading session Nifty continued to move in lackluster environment and consolidation was witnessed in between 8660 and 8620 level. Sector wise Midcap and Smallcap index has continued to outperform whereas Bank Nifty has been moving in range after the sharp rise. Stock specific action has continued in which Auro Pharma, Cipla, Maruti and ZEEL were among the top gainers. This suggests that as long as we do not witness decisive breakout in Nifty, it is better to trade with stock specific however one should not leverage much and strict risk management is must.

Understanding Internal Breadth: the entire month August 2016 has been challenging from trading perspective due to the contracting nature of price action. Moreover such contraction is happening near the trendline resistance and hence it becomes crucial to gauge the internal health of market. As per the concept of market breadth, the uptrend is strong if advancing issues are more and declining issues are less however if advances are less and declining issues are high then it is called as deterioration in market breadth. This can be seen by looking at the deteriorating Advance Decline line that has broken below March 2016 lows from where the rally started.

Looking at another Breadth indicator NSE Net Monthly highs Lows chart. This indicates that in the start of July 2016, most number of stocks registered the monthly highs however post that there is clear down trend in this chart. This suggests that as the trend is ongoing fewer stocks are touching the high which is sign of concern. Hence this sends warning signal however it is better to wait for market to confirm the same.

Please note these indicators provide early warning signal but unless there is price confirmation by break of crucial support levels one should not preempt reversal. These levels are respected very well for many weeks now. To get insight into the next crucial level which will hint towards trend changer Subscribe to The Financial Waves Short Term Update by simply visiting Pricing Page

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