Nifty has been moving in lackluster fashion for many weeks
now. We have applied various technical analysis methods to see the maturity of
trend.
We have been prudent
in capturing the lows near 8500 and index has already rallied by more than 300
points since then. The outlook was mentioned in our daily research report “The
Financial Waves short term update” Also as expected the black channel
resistance is broken this time since the up leg is of one higher degree.
However, momentum has been lacking after just first day of rise on18th October
2016. During such scenarios it is important to look at other technical
evidences to understand the maturity of trend and if there are other vital
clues they are providing.
Nifty daily chart:
Wave analysis:
Below part of the
research is picked up from “The Financial Waves short term update”
Volumes had remained stable: Volumes normally reduces during a non – trending environment and if there
is increase in volume with no net progress in prices it indicates distribution.
From the daily chart, we can see that the average of volume (red) shown on the
volume indicator had remain stable since July onwards. However, Nifty was
trading near 8670 level in last week of July and we are still near to that
level. Such non trending move should ideally result into reduction in volume
but we can see that the average has continued to be at the same level. This
means that there has been exchange of hands without any meaningful progress in
prices. Such behavior after a sustained rise is associated with Distribution
pattern. It is not very promising sign from medium term perspective.
Average Directional Index (ADX) – ADX indicator measures the strength of the
trend. This indicator rises during a strong trending move irrespective whether
the trending move is on upside or downside, whereas a non – trending move
results into lower reading on ADX. The same is highlighted by black line which
has now touched 13 level that was seen during early April just when the bigger
degree uptrend was starting. We are seeing this reading again at the current
levels that indicates non – trending move after a sustain rise probably a
distribution.
ADX is normally
calculated using positive Directional Movement index (+DMI) and negative
Directional movement index (-DMI) and the average of the difference of this
indicators form ADX. In simple terms, it measures the strength of positive bar
formation over negative bars over the given period of time. Such low readings
on ADX only points towards the fact that a trending move is now due. It does
not highlight the direction of the trend but it strongly suggests that the
boring trading environment is going to be over soon.
Nifty 60 minutes chart along with detailed
Elliott wave counts are shown in the actual research report “The Financial
Waves short term update” with short to medium term outlook and key reversal
areas. For more details visit Pricing Page.
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