Nifty down 400 points in just 7 trading days! See amazing application of indicators....!!

While many traders were expecting Nifty to move towards 12000-12500 levels we have been expecting a reversal on the downside as majority of the indicators were pointing towards it.

This is exactly what we expected and we talked about the same in our Monthly report published in the 7^th September 2018. We were able to anticipate the coming trend just with the help of Indicators & basic techniques like Moving averages.

Below is the chart we published in our monthly report, “The Financial Waves Monthly Update”

Nifty Daily chart with Moving averages and indicators : Anticipated as on 07 September 2018

 Nifty Breadth chart

 

Nifty Daily chart: Happened as on 19 September 2018

(Below is the extract of research published in the Monthly report)

Anticipated:

Nifty moved in unchartered territory in the month of August and touched life time high levels of 11760. The movement on the upside has been without the support of much needed breadth and broader participation. It is only lately we have started seeing some participation from Midcap and Smallcap indices. These high beta indices still are far away from their life time high levels. The overall Advance decline line which measures the number of stocks advancing to that of the declining has continued to stay near the lower levels. Infact this line is near the lows when Nifty was sub 11000 mark. This is very similar to the rise seen during early 2015 post which we saw a correction for almost a year until 2016. This is the reason why not all stocks in your portfolio might be moving higher despite Nifty touched life time high levels in August 2018.

There are three different Moving averages shown on the chart.

20 days and 5 days Moving average –These are short term averages and quite useful for swing traders. The common tendency is that the 5 days average moves away from the 20 days and then again it mean revert to the 20 days average. This tendency can be easily seen using the Moving average difference indicator shown below the chart in Figure 5. When this indicator falls below the 0 line we know that there is Price and / or Time correction which has started. Post the lows formed near 10558 we have not seen negative crossover. The selling seen over past few days this average is now coming closer to a negative crossover. This will further confirm that atleast a short term top is placed on upside.

At the same time the indicator also helps to understand the overbought zone and the extreme levels. We can see that the MA difference is reversed exactly from upper end of 200. This level was taken out only once but that too temporarily. During the entire up move since the low formed in December 2016 near 7900 levels the difference between 5 days MA and 20 days MA never exceeded 200 points. This is very vital information and so any further deviation of more than this might hint towards unsustainable mania as the undertone.

Case in point –The overall tone of the markets looks reversing on the downside. We have entered into very important phase. As we have not yet seen reversal in the trend following system but at the same time the indicators have reached the extreme reading and so one has to stay cautious. For investors this is not the ideal level to enter and it is best to wait for mean reversion back towards the long term average for fresh long term investments.

Directional Movement ADX–Directional movement index (ADX) is used to determine the maturity of the trend. This indicator is now at the previous peak levels. After this trending move there is tendency to see non trending behavior. A turn on downside in this indicator will suggest that the distribution has started. For now it is suggesting markets are reaching the extreme levels.

In a nutshell, the overall trend looks matured and we have started seeing the volatility. The indicators have entered into extreme levels but it has been more than 22 weeks since we saw lower high and lower low on weekly charts. This week we closed below 11595 which is negative close below prior week in nearly 22 weeks.

This is another way of following the trend. To avoid the confusion and put it simply the trend looks matured and next few days are crucial for confirmation. Fresh longs should be created with caution. …… The ongoing mania is going to culminate equally fast and one should be quick to change the stand as and when it happens.

Happened: Nifty has reversed back sharply from the highs of 11600 and touched intraday low of 11210 in today’s session. This clearly shows how basic indicators can also be highly effective and it clearly reflects how one can combine these various methods together.

The above shows power of basic technical even without Elliott wave. When we combine these advanced concepts with basic methods the accuracy takes a huge jump. So for how long this downtrend will continue?

To know what we are expecting from Nifty and how other stocks are expected to move on short-term basis subscribe to our report under the name of “The Financial Waves STU” Get access here

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