Nifty: On inverted scale: A different perspective to look at the trend!

Nifty has continued to move higher into uncharted territory. Everyone has started guessing the upside targets probably not on basis of any rationale but mere convictions. If conviction worked that well then why do most end up buying near the top and selling exactly at the wrong time.

Convictions are random and create false hopes at times. It is no different than a Gambler’s fallacy.During euphoric times it is prudent to look at the price movements by applying not only advanced concepts but also basic concepts of technical analysis.

Below is chart of Nifty but with a different perspective. An inverted chart! This chart was shown in our research report “The Financial Waves short term update” few days back on www.wavesstrategy.com.

Nifty daily chart – inverted scale

Wave Analysis:

In previous update we mentioned that, “In short, continue to use reactive method with trend following system i.e. to stay positive unless we see close below 5 days moving average Also stay alert and not complacent like majority because many things are going to align together over next few days”

Nifty inverted scale:We have certain perceptions when looking at an index or a stock during a downtrend compared to the uptrend. We tend to look at a specific pattern when the index has moved sharply lower but majority continue to maintain the strong bullish stand when the same index moves sharply higher. This thought process evolves from the basic assumption that there is a limit to the down move but the up move can continue towards unprecedented levels. Majority of the investors are conditioned to think in this way. Isn’t it a paradox!  Now look at Nifty daily chart shown above in inverted format. Following are a few observations:

(Please note the below reading is based on inverted scale so a positive divergence will actually indicate negative divergence on non-inverted scale. Also observe the scale on the chart which has increasing values down the chart)

The entire move has been in corrective fashion rather than impulsive which is very well within the black downward sloping channel. The support (as scale is inverted) of the channel is now at ……..levels and the down move is in matured stage. It is extremely rare to see a downfall to break the lower trendline of channel on downside itself as the entire move is associated with such loss of momentum and RSI has constantly shown positive divergences. So if we go by the very basic foundation of technical analysis that what has worked in the past will continue to work in future …….However, with passage of time the levels will keep increasing as the trendline is downward sloping.

Nifty hourly chart:As shown on hourly scale prices are currently moving higher in blue channel. As long as this channel is intact the short term trend will remain positive. As mentioned earlier only a close below ….. (shown in actual report)

Indian equity markets have arrived at crucial juncture. These are interesting times when emotional trading takes the front seat and the rational and logical reasoning becomes a passé. It is prudent to avoid a top here but at same time one has to be alert and keep monitoring price reaction near key reversal areas.

To know what is next from here on stocks and Nifty along with detailed Elliott wave counts and pattern analysis, Time cycles, sentiment indicators,etc subscribe now to “The Financial Waves short term update”. For subscription options visit the Pricing page on www.wavesstrategy.com and get instant access to daily research reports.

Nifty bounced back from 76.4% Fibonacci retracement at 7960, Elliott wave structure of up move crucial!

Bottom Line: Nifty continued to move higher but formed a DOJI bar on Friday. Weekly bar has still formed a negative formation.

The below research is picked up from daily report publication "The Financial Waves short term update". For subscription options visit www.wavesstrategy.com 

Nifty daily chart:

  

Nifty 60 mins chart:

Wave Analysis:

In previous update we mentioned that, “In short, close above 8210 - 8215 is important to start deeper correction on upside towards 8380 level where 61.8% retracement is placed of the prior fall. Also it will be important to see the overall breadth and sustainability if Nifty has another Gap up opening!”

Nifty had another Gap up opening on Friday and touched intraday high of 8263 levels. Prices consolidated within the range of 8200 and 8260 for the rest of the day. A very important observation is that Midcap and Smallcap sectors opened strongly but later closed near the day’s low. The overall breadth was also only marginally positive. This behavior is peculiar to wave b formation which is retracing the down move from 8627 to 7960 levels.

As per weekly bar technique, for the third consecutive week prices were unable to take out the high of prior week and closed on the negative note. For weekly trend to turn positive prices have to close above 8265 which is previous week’s high by end of the current week for uptrend to continue. Nevertheless, over short term as prices have given Gap up move on Thursday and Friday the short term trend is positive.

After V shaped recovery prices tend to take important support and resistance near Bollinger Bands®. So we have applied this technique on hourly chart. The resistance as per this technique is now near 8320 which is also the previous pivot area and the support continues to be near 7960. The Bollinger Bands width has drastically increased to rise in volatility and should narrow down over next few days giving more accurate turning areas.

From wave perspective, we are expecting the current ongoing move as wave b formation which can retrace anywhere near 8370 to 8470 levels which is the 61.8% to 76.4% retracement levels. However, it will be crucial to observe if prices continue to protect the recent Gap areas. On downside as long as 8080 level is protected the upside correction can continue.

In short, the near term trend is positive for now as long as the Gap area near 8150 followed by 8080 is protected. It will be crucial to see if this rally can extend beyond 4 days. We will keep an eye on broader market and high beta stocks for more clues on the overall strength.

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Nifty - Key reversal day and at inflexion zone!

The below research was published today morning before equity markets opened. For subscription to "The Financial Waves short term update" report on daily basis visit http://www.wavesstrategy.com/index.php/store.html  

Bottom Line: Nifty had a strong Gap up opening supported by ITC but prices gave away entire gain in same hour and filled the Gap.

Nifty daily chart: 

Nifty 60 mins chart:

Wave Analysis:

In previous update we mentioned that “In short, the trend for Nifty is going to be sideways and move above 8560 is important for positive trend to resume. Only a close below 8430 will indicate weakness and deeper retracement. The size of bar in either direction will be important to observe!” 

Nifty had a very interesting movement yesterday. Prices had a Gap up opening and immediately made a high of 8627 in the form of a spike and reversed sharply in the same hour touching a low of 8526 which is exact 100 points from the top. Spikes at times provide very crucial support and resistance levels. The high made at 8627 is now going to act as very crucial upside resistance and unless we see a close above this level the short term trend will remain sideways. FMCG sector was top gainer followed by Banking sector that managed to retest the morning highs.

As shown on hourly chart, there is a possibility that the wave (v) we have been expecting on upside might have completed at yesterday’s high itself. However, prices have so far not breached the support on downside. Normally such sharp movement is also termed as key reversal day if the follow-up action confirms it. It is better to wait for negative confirmation atleast below 8500 to confirm this key reversal bar. Normally it should be associated with high volumes which were not seen yesterday. Nevertheless, a close below 8500 followed by 8430 will confirm that an important top is formed. For now it is prudent to wait for break of levels either below 8627 or 8500.

Alternate possibility: The reason for showing alternate possibility is that wave v of c has now consumed lot of time compared to previous impulse up moves. So there is a possibility that the entire up move is in the form of double corrective pattern from the lows of 7730 and now prices are in second correction which is forming a rare expanding triangle pattern. A move above 8627 with increase momentum will raise the odds that these alternate counts are under play and higher levels can be seen towards the upper blue channel line.

In short, yesterday was an important movement from technical perspective. We have to wait either 8500 to break for negativity or 8627 to break for resumption of uptrend. Such range bound movement can continue to be frustrating but as highlighted earlier prices cannot continue in trendless manner for very long. A trend has to emerge soon!

Subscribe now for the daily research report "The Financial Waves short term update" and see yourself why Indian markets are at very crucial juncture. The daily morning research will give insight in stocks and other indices as well. For subscription options visit http://www.wavesstrategy.com/index.php/store.html