Will RBI cut interest rates? Equity markets leading government actions - US FED did not change rates!

US FED meeting was one of the major events that majority have been tracking.

The reason was obvious that an increase in interest rates by FED would have resulted into negative repercussions across global equity markets. However, we beg to differ on this and believe that the government or central bank actions are lagging indicators to equity markets. After the event on 17^th September 2015, US major index – DJIA entered into red territory on the same very day even when FED did not hike interest rates!

Now below is the excerpt from our daily research report “The Financial Waves short term update”published on 16^th September morning.

Nifty had a subdued opening and prices traded in red throughout the day. There was no momentum even on the downside and majority of the stocks are also stuck in a range. It seems most of the Global markets and not only India are waiting for some trigger probably US Fed meeting which is due this week. We are not waiting to see what FED announces but the reaction of global equity markets to the FED decision is going to be important. Looking at the sharp selloff in last week of August even in DJIA – US there is high likelihood that the status quo will be maintained and there is not going to be any rate hike. An uptick on this news will be in sync whereas a sharp selloff will result into news that the economy is still not out of the woods and so FED did not hike the rates. Case in point: News will change based on the market reaction post the event! For us a negative close on a positive outcome will be bearish and vice-versa.

Will RBI cut interest rates in its policy meeting on 29^th September 2015?

Looking at the performance of Indian equity markets over past few weeks and given the sharp selloff on 24^thAugust until first week of September, we think there is very high likelihood for RBI to cut repo rates by atleast 25 bps! We will not be surprised to see if RBI tweaks other key rates as well to increase the supply of money in economy. As mentioned earlier Equity markets are leading government actions and central bank actions are lagging indicators.

Nifty daily chart:

The above chart shows that the cut in interest rates by RBI in Feb 2015 created a medium term top on same day at 9119 levels. Later the rate cut was done in June and markets continued to move lower even after that. So irrespective of the RBI cut in interest rates equity markets continued to drift lower.

We strongly think that the underperformance in equity markets will put pressure on RBI to cut interest rates in upcoming meeting on 29^th September but we have our doubts if Nifty will move higher after the cut. Recent past shows markets reacting lower on rate cuts. Let us see if history repeats again this time!

We do not rely only on one aspect of history to base our decisions but there are lot of other indicators – Elliott wave pattern, Indicators, Moving averages which are slowly getting aligned again! We will highlight in our daily research report when is the time to pull the trigger…

Do not miss out the another opportunity which is going to arise soon like the one we saw in last week of August – a strong trend. Subscribe now to “The Financial Waves short term update” from Pricing Page. For any other details visit www.wavesstrategy.com

Nifty trading in Extracting Triangle or Expanding pattern? Irrespective of RBI Policy

RBI maintained status quo on the key policy rates.

Nifty has continued to move in a range irrespective of the policy announcement.

Extracting Triangle: This pattern is defined in Neo Wave – Advanced Elliott wave that takes the category of a triangle but does not necessarily look like an orthodox triangle pattern. This pattern as the name suggests extracts the power from the up leg (during upside correction) and the downside move gets stronger i.e. during an up move in form of Extracting triangle wave e < wave c < wave a whereas wave d > wave b.

Now look at below chart of Nifty which so far looks like an Extracting pattern. However, this is our assumption by looking at Time cycles that the pattern under formation will probably form an Extracting Triangle.

Nifty 60 mins chart:

The above chart with detailed explanation is published in the daily research report “The Financial Waves short term update” For detailed explanation and key levels subscribe to this report. Following is just an excerpt from the same:

Yesterday major buying was seen in Midcap and Smallcap stocks that continued to show outperformance over past few days. Banking stocks were among the top gainers before RBI policy meet today. It is expected that the key rates will be left unchanged. During an event closing price becomes important.

As shown on daily chart, 200 days average continue to move ………

As shown in 60 min chart, from the lows of 8321 prices bounced on upside and still running its course. Yesterday positive close was witnessed in this index but today’s close will be important after the policy announcement which will be probably kept unchanged. Momentum from here on will be crucial to watch as prices have now retraced the down move which started from the highs of 8654 to the lows of 8321 by almost 76.4 %. As per wave perspective, wave e of extracting triangle is still ongoing and the maximum allowable limit for this pattern is till ………….

In short, ……….move below 8410 will be first sign of exhaustion. Also we normally see a trending move about 30 mins after the policy announcement. Let us see if RBI acts as a reversal trigger like previous instances irrespective of rate cut or not or it results into a non event!

To know the key levels that will decide the reversal zone along with Elliott wave structure of stocks subscribe to “The Financial Waves short term update”. For subscription option visit the www.wavesstrategy.com or call us on +91 9920422202/+91 22 28831358

Sensex: Break above 28800 is important to resume the uptrend! Economic times section of Navbharat Times

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.

Sensex has continued to form new monthly highs and touched the level of 28822 by end of November 2014. As long as prices manage to protect the low of prior month on closing basis the medium term trend will remain positive. November month did not see any strong momentum. Currently prices closed at 28458 which is only 45 points above the level seen in start of November. This shows that some strength is reducing on upside and one should invest only in selective stocks with lower “Price to Earning” multiples and good management.

NSE Advance decline line is a simple technical indicator which shows the overall breadth of the market. Even when Sensex is touching new highs this indicator is moving lower indicating more number of stocks were closing negative as compared to advancing stocks. This is known as negative divergence and it shows only selective number of stocks is taking index higher which are not a healthy sign.

RBI credit policy: RBI kept the key policy rates including repo rate unchanged in the meeting held on2^nd December 2014. RBI governor Raghuram Rajan said change in monetary policy stance now would be premature, adding RBI may change stance in early 2015 if inflation falls to 6 percent. This shows that RBI focus still remains on curbing down inflation first even if the overall economic growth might be slow.

Indian Rupee has continued to show relative outperformance since September 2013. Even when US Dollar has rallied sharply over past few months USDINR has managed to trade within the range and protected 63 levels on upside. Indian Rupee has been one of the best performing Asian currencies so far. The important support on USDINR is now at 59.50 and resistance is near 63.Break of either of these levels will start a strong trending move in that direction

Commodity prices: Commodity prices have continued to correct over past few months. Crude Oil touched the lowest level seen previously during 2009. This will help to reduce the pressure on India import bills. However, falling Crude prices is more driven by reduction in Global demand. This will put pressure on companies involved in production, exploration and refinement of Crude oil like Cairn India,Aban offshore.

Week ahead: In a nutshell, looking at the overall breadth, momentum and sector participation we think that the risk has increased for fresh investments at current levels. However, for change of trend there has been no price confirmation and unless we see a close below 27700 levels the medium term trend will remain positive. Another important technical indicator that can be used to understand the direction of market is 10 weeks Moving average. The support as per this average is near 27700 on downside. In current week, move above November high near 28800 is important for uptrend to resume with support of 27700!

Will RBI maintain its “status quo”? What next for Nifty?

After Mr. Raghuram Rajan took over as new RBI governor past year there has been lot of surprises on the key policy front. 

The stance that new governor has taken is focusing more on inflation rather than growth which can be clearly reflected in the sluggish GDP data released and he is unmoved by the slow growth factor. Even last time RBI increased the rates surprising the street and even the Bond traders.

Today at 11 am RBI action will be closely observed but we do not think that has anything to do with the trend of Equity markets. Last time when RBI raised interest rates Nifty and Sensex closed positive even when the rate hike was surprise to many.

We use 12 Months bond yields to determine if the rate hike is expected by the Bond traders or not. Following is written in today’s morning research report “The Financial Waves short term update”

“Bond markets have shown some ease on the yields indicating that there should not be any further rate hike from here. The 12 month Government Bond yield tries to lead RBI actions but after the tweaking on MSF has started this indicator accuracy has reduced. However, if Bond markets are getting it right then RBI shall maintain its “status quo.”

So how will the equity markets behave?

Betting on RBI policy to judge the behavior of equity market is just like tossing the coin. As we said last time there was rate hike and market did not react negatively.

On Election day Mr. Modi won with a clear majority and Sensex showed negative tick even though momentarily after the event.

So food for thought is Does news really drives stock market? If not then what does?

Stock market discounts future and news are the output. It is mistaken the other way by many. However, news can result into short term spikes which might last from few minutes or few days or few weeks at times but eventually the major trend resumes!

Nifty 60 mins chart: Guess the pattern? 

The above chart of Nifty clearly shows a contracting pattern. In technical analysis it is called triangle. Prices are moving within the range since the Election result day. So which side do we expect the range to break as per Elliott wave counts?

To know how can we use this pattern to our trading advantage subscribe to “The Financial Waves short term update” which has basic as well Advanced technical concepts like Elliott wave on Nifty and 3 different stocks.  Visit for subscription options http://www.wavesstrategy.com/index.php/store.html

Indian market selloff: FED or RBI is to be blamed?

The below research is picked up from "The Financial Waves short term update" daily research report by Waves Strategy Advisors. For more details visit www.wavesstrategy.com

Many traders or analysts are blaming either FED tapering responsible for selloff in Emerging markets or RBI responsible as it raised key policy rates. 

This might sound logical but not necessarily the reason for selloff. Last time when FED reduced bond buying program US markets rallied on the same day and after RBI raised interest rates on28^th February 2014 Nifty momentarily entered into positive territory. So if news or events are responsible for market trends than why the contrary movement to the news?

Now read below the analysis by using Advanced technical analysis like Elliott wave, Channels,RSI, Time Cycles etc that is shown in “The Financial Waves short term update” research report published daily.

On 24^th January 2014 we mentioned that “Nifty continued to struggle within the zone of 6320 – 6380. The up move is with less power so far. Trade cautiously! In short, we continue to look at the overall structure as topping with resistance level at 6380. Move below 6280 will indicate minor negativity and if prices fall below 6240 impulsively we will get further negative confirmation.”     

On 25^th January 2014we mentioned that “It is time to get ready for dynamic and volatile environment again. The narrow range bound movement affects our psychology and conditions us to think of 50 to 60 points move on Nifty as big enough. During August – September 2013 we have witnessed moves of more than 150 points. So get ready if that is about to happen again.

Nifty finally broke below the level of 6280 and that too impulsively indicating a possible top near 6355 levels. The fall on Friday was across the sectors and all the major sub-indices includingPharma and IT closed negative. If Nifty has a Gap down opening it will be important to see if the Gap can remain unfilled today. Giving little leeway existing short position should now trail stoptowards6320 levels.”

On 29^th January 2014 we mentioned that“Nifty short term outlook: The severe selloffseen over past 2 days spread across the broader markets as well clearly indicates that an important top is in place. Looking at the time perspective the complete up move from the low of 6139 to 6355 in 9 days is retraced in mere 2 day’s time. In short, the near term trend remains firmly negative …..”

Nifty 60 mins chart: (showed on 24^th January 2014 morning)

Nifty 60 mins chart: (Happened as of today expiry)

Happened: We have been constantly cautioning our subscriber since Nifty had been trading in the zone of6320 – 6380 levels. Prices reversed exactly in between of these levels from 6355 and broke the important level of 6280 followed by 6240 which confirmed our bearish outlook. We constantly advised to use trailing stop method in order to ride the trend on downside as Indian markets have a habit of moving either with Gaps or very steeply giving little reaction time. 

Nifty has moved from 6355 levels and made a low of 6027 today. This move has happened in less than 5 days. Such strong trending moves simply reflects why one should be always alert when trading even when markets are moving in narrow range as the volatility is cyclical which increases and decreases in timely fashion. We have accurately captured this move and there is more to it!

If markets would have moved logically based on news outcome then making money by trading would have been a cake walk for everyone. But there is something else that moves the market and we are closely tracking those patterns! Subscribe today “The Financial Waves short term update” and see yourself the answers to why, when, where Indian markets are headed from here. Visit the Pricing Page for subscription options.