Nifty outlook using combination of Elliott wave, Channels, ADX indicator, Volumes!

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.

Nifty: Application of ADX indicator, Andrew Pitchfork, Channels, Moving average difference

Bottom Line: Nifty moved in a narrow range in yesterday’s session. Short term trend will continue to be positive with 7820 as important support. 

Nifty daily chart:

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:

In previous update we mentioned that “Close above 8000 will result into positive trend towards the channel resistance placed near 8150 - 8200 levels with yesterday’s low near 7820 as an important support”

Nifty did hit new high for 2016 by touching 7991 levels on intraday basis. The movement continued in stock specific manner with Banking index that was leading the way up showing some correction in previous session.

During such times it is important to apply different techniques and see if momentum is building up or not for much higher levels. The first daily chart of Nifty shows modified blue channel which is connected from the unorthodox top given the fact that correction on downside as per the wave theory started from that truncated high made in April 2015 at 8845. The next resistance zone as per this channel is now near 8150 levels.

Also, Moving average difference indicator shown below is now at a difference of 150. The strongest of the momentum was seen on 28^th January 2015 with MA difference value of 270. It will be only on decisive break above 8150 followed by reading of 270 on MA difference indicator that will indicate the index is indeed headed towards much higher levels even if it is in corrective fashion.

ADX Indicator: This indicator measures if a trending move is about to emerge. We can see that the value of this indicator continued to move lower during the entire uptrend until recently. A sharp fall followed by a rise results into a non trending move over medium term and so we are seeing such lower value on ADX. A continuous rise on Nifty above 8150 will probably break the value of 25 – 30 which normally signals a trending move.

Andrew’s Pitchfork: A very important channeling technique that plots the channel based on standard deviation and mean trend is shown in red color. The entire up move is contained within this red channel. Break below 7820 will break the lower trendline and provide first negative confirmation. But as long as this level is intact short term trend will continue to be positive and move above 8000 will provide further confirmation.

Over short term, as shown on daily chart, it is not clear if wave (b) is indeed over or not. Today being the expiry volatility around this psychological level cannot be ruled out. Decisive move above 8000 can result into short covering that can drive the trend towards the channel resistance again placed near 8150 – 8200 zone.

In a nutshell, all of the above indicators are pointing towards 8150 – 8200 as very important level on upside. Strong break above these levels along with extreme reading on momentum indicators will confirm that the medium term trend is extending further from here. Failure of prices to cross this zone and divergences on various indicators from here on will send across cautious sign. Next few days of price action will provide a clear conclusion. For now, over short term break above 8000 will continue the short term positive trend towards 8150 with 7820 as important support.

“The Financial Waves short term update” research report is published on daily basis that shows detailed Elliott wave structure applied along with other technical tools and advanced concepts on Nifty, Bank Nifty, stocks. For subscription options visit Pricing Page.