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 7th 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
For long term view, subscribe to our monthly report under the name
of “The Financial Waves Monthly Update”.
Get access here
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