Selloff in Nifty continues even before Delhi Election exit polls - Impact on markets

Selloff in Nifty continues even before Delhi Election exit polls - Impact on markets!

Following is the research published today morning before equity markets opened by Waves Strategy Advisors. For subscription options visit www.wavesstrategy.com

Nifty continued to move with high intraday volatility but managing to form lower highs and lower lows so far!

Nifty daily chart:

 

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Nifty 60 mins chart: Today morning before markets opened

Happened by closing -

Wave Analysis:

In previous update we mentioned that “In short, trend for Nifty continues to be negative unless we see a close above prior bar’s high. Intraday volatility can now subside and a strong trending move is due to emerge. Decisive break below Bollinger band will provide strong negative confirmation.”

In the morning research report we published the following and expected the down move to continue:

Nifty continued to form red bar throughout the week and closed at not only the day’s low but also week’s low. Infact, on the weekly basis we can see a very strong bearish Evening candlestick pattern. This is three candles pattern and usually indicates short term reversal especially when it occurs from the important Fibonacci and Channel resistance area. The reversal in last week happened from the channel resistance and the Target zone which we have been already expecting. This increases the significance of the Evening star pattern. This pattern will carry weightage on break below the low of the third candle which is at 8645. Again, this is on a weekly basis and so if the current week closes below 8645 i.e. by end of Friday it will confirm this bearish pattern further.

Now, Delhi Election exit polls are suggesting a clear victory by AAP party. This will become clearer tomorrow on the counting day but markets are going to discount it today in anticipation. This does not directly impact the ruling government BJP but the rally has been more driven by positive euphoria rather than rationality. Also the Banking stocks have already started taking a beating after a few banks reported poor than expected results both in Private sector and PSU space. Case in point is if the two major factors responsible for driving markets toward 9000 mark are changing then there has to be some impact and change in sentiments atleast over short term.

Now coming back to the Nifty hourly chart, we can clearly see that prices have so far not generated downside momentum but has closed below the previous wave x zone at 8695. Now the downside momentum should generate and trend can be very sharp. On upside 8760 which is near the 15 periods Exponential Moving average can be used as trailing stop preferably on closing basis given the sharp intraday volatility over past few days. Also event can result into rise in volatility and one should have the strategy ready before the market opens to avoid impulsive reaction.

A very important observation is that each of the up move post May 2014 – after the Lok-Sabha elections has been retraced by 76.4%. This has been one of the major factors that has also indicated the up move is not strong but corrective wave and if the similar pattern is followed now as well then we should see a retracement towards 8220 – 8290 zone.

In short, we continue to think that prices are now in wave c or wave iii and trend will remain negative unless we see a close above 8760. Sharp move towards 8450 can be expected if this is indeed wave iii on downside which will also confirm a bigger degree top atleast for few months is formed!

Happened: Nifty moved sharply lower exactly as expected and continued the selloff. Prices have been moving down from the highs of 8996 exactly as we have been expecting in our daily research report.

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Election impact on stocks but trend had been already up from 5970!

By Waves Strategy Advisors, For daily research subscription of Nifty along with 3 stocks,  visit http://wavesstrategy.com/index.php/store.html

“The state election outcome with clear majority of BJP is in lines with expectations. This event can result into a strong Gap up opening today.”

It is really interesting to see that when in 2004 Congress was elected at center market continued its prior strong downtrend, then in Loksabha 2009 market closed on circuit up showing extreme bullishness and now people want BJP to be elected to stay bullish on markets. So there is no consistency in using election outcome to predict markets. But an important thing to observe is that in each of the outcome the prior trend has continued. In 2009 the prior trend was already strongly positive which continued post-election result announcement. Going by the same trend logic if we look at current scenario, Nifty has been in an uptrend since the low of 5970. It has been constantly forming higher highs and higher lows and is now in what is a dream run for anyElliottician a 3^rd of a 3^rd wave.

Nifty 60 mins chart

The above chart clearly shows an up move ongoing since the lows of 5970. This up move has constantly made higher highs and higher lows. Before the event outcome it is prudent to keep the exposure less as volatility can be high. But nevertheless we have been constantly suggesting that the trend has been positive all the while. Below is the excerpt from the 6^th December 2013morning report:

“By simply looking at the charts and Elliott wave counts it seems prices are now in wave iii. This wave iii should travel towards 6400 - 6440 levels where wave iii = 1.618 * wave i. The strong Gap up opening simply reflects the ongoing social mood as of now and expectation of BJP coming in states with majority. Socio-economic studies indicate that post period of extended correction, there is tendency of people to select the extremist parties as they are too bugged up with the existing government whom they think is responsible for the bad economy. President Obama was elected during distressed time and he was re-elected as markets produced positive returns during his tenure. So we can expect in upcoming central election people might tend to select BJP or other parties over ongoing Congress government.

Coming back to Nifty our outlook is going to be bullishbut there is an alternate possibility of wave x ongoing as shown in red on 60 mins chart. … But as long as 6190 is now intact we will stay bullish.

In short, the trend continues to be positive and existing longs can now trail stop towards 6190 levels. As high volatility can be expected keep less exposure since on Monday we can see a movement of anywhere between 150 to 200 points on Nifty. If the event outcome is as expected then we can have strong Gap up in wave iii of 3 else short term...”

Nifty is going to have an opening with a Gap up of nearly 200 points as shown by SGX. We cannot be more accurate than this. We also cautioned in case the event does not go as expected what should be the crucial levels to observe.

Many would turn bullish after the Gap up move today but the best of the trend might be missed. If our long term forecast is correct as shown in Monthly report then this can be just the beginning. At the same time knowing the short term moves is important to time the market.

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