Nifty Elliott wave and power of channels!

Bottom Line: Nifty continued to find to cling to the upper trendline of channel. Let us see if momentum can build up from here or fizzles out!

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:

In previous update we mentioned that “Nifty has continued to trade near the important channel resistance and stay alert. Close above 9650 is must to continue the rally whereas move below 9580 followed by 9545 will indicate that wave b has started on downside.”

Nifty continued to move in a range as expected and is simply clinging onto the upper trendline of the channel. The resistance as per this line is shifting higher since it is upward sloping and now it is at the zone of 9660 on upside.

A very important observation is that the premium on Futures has reduced drastically which is demanding mere 5 points premium against the underlying spot. During strong trends we have observed futures premium to be in the zone 30 to 50 points when expiry is that far away. It is important to keep a tab on this indicator over next few days.

As shown on hourly chart, prices continue to cling to the trendline. RSI is exhibiting minor negative divergence but there is no price confirmation. Break below 9545 will indicate that wave a is over and wave b is starting on downside.

From trading perspective the most important aspect is to identify the pattern under formation. After completing second wave x near 9342 on 21^st May prices are now in third standard pattern. There is high probability that this pattern will develop as a Triangle since complex correction normally ends with a triangle or a wedge pattern but it is only an assumption. Next few days of price action is going to be important which will provide clarity on the ongoing structure.

Nifty can continue to consolidate as long as 9660 and 9545 levels are protected. So Buying near supports and selling near resistances can be a good strategy to capture small moves during the day.  Selective stock movement has continued where only a few stocks are helping index to stay at elevated levels. Nevertheless, there is no negative price confirmation as of now.

In short, break below 9545 will indicate that wave b has started. Price and time taken by this wave b will confirm the entire pattern. If wave b consumes lesser time than wave a and retraces less than 50% of wave a then chances of Diametric pattern is high whereas more than 50% retracement of wave a will increase the probability of Triangle formation.

The volatility is going to increase in next few days and in this volatility one should not get carried away and following the important reversal area along with pattern is vital. Subscribe to “The Financial Waves Short Term Update” which covers Nifty and 3 stocks on daily basis.