How to trade Nifty on monetary policy day?

Bottom Line: Nifty traded in a range ahead of RBI Policy. Today’s closing will be important. Movement can be seen 30 minutes after policy announcement.

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:

In the last update we mentioned that, “looking at the overall movement, pattern and indicator we expect range bound action for few days between 8200 and 8000 levels in the form of wave b of E. Decisive break above 8250 will hint towards start of wave c of E on upside whereas move below 7915 will be bearish!”

In the last session Nifty had minor Gap up opening near 8150 level and prices moved higher towards 8178 level. However in last one hour momentum failed to pickup and there was short term reversal. This happens typically during a sideways market. In this environment, stock specific action has continued and one should trade with strict stop loss until market confirms trend in either direction.

Today RBI’s monetary policy meeting is crucial as it is post the Demonetization announced by Government on 8^th November 2016. Majority are expecting a rate cut of atleast 25 bps in today’s meeting. India 10 year Bond yield has shown sharp fall from 6.80 to 6.18 level post 8^th November 2016 which suggests that rate cut by 50 bps is also plausible. So today there is going to be high volatility however closing will be important which will also guide for next short term trend. It is normally observed that the trending move starts 30 minutes after the policy announcement. Let us see if the same happens even today.

The daily chart shows that prices are again testing 20 days EMA along with red channel which will act as resistance as per polarity reversal. So move back above 8200 is required which will break the resistance of the channel and will hint towards deeper retracement in the form of wave c of E. Until that happens it is better to wait for break of support or resistance levels.

As shown in 60 mins chart, price had Gap up opening but failed to generate any upside momentum in second half. We have applied Bollinger Bands and in last session Nifty has reversed from the upper Bollinger Bands. Lower Bands is now placed at 8055 which is also the pivot low. Hence for short term trend decisive close either above 8200 or below 8050 is required.

In short, we are expecting 50 bps rate cut by RBI in today’s meeting. Market closing will be important which will decide the short term trend ahead. 8200 and 8055 is the range over near term.

To know the short to medium term Elliott wave counts on Nifty as well as important reversal areas, subscribe to “The Financial Waves Short Term Update” which covers Nifty and 3 stocks on daily basis. For subscription options visit Pricing Page

Nifty Trading Strategy post RBI policy announcement!

In today’s policy meet RBI increases repo rate by 25 bps and cuts MSF by 25 bps.

After taking the governor position Mr. Rajan has increased the key policy repo rate by 50bps in total. Many thinks that the policy announcement decides the trend of the market but that is not necessary. There are times when market reacts to favorable news positively and at times it moves exactly opposite to the expected positive outcome. The reason being that the events do not change the trend of the market but only produces short term spikes that last from few minutes to hours or days but the original trend later on resumes. Elliott wave principle – an advanced technical analysis concept helps to understand this trend and provide forecasting ability.

Have a look at the below chart and try to forecast Nifty using only Interest rate cycle. Infact, if you observe markets have gone up after the repo rate hike on both of the instances.

 The above chart clearly shows interest rates do not decide the major trend of the market but nevertheless it plays a vital role in providing information from Economic analysis perspective. An interest rate cycle tops out before the major bottom is formed in Equity markets. There is much more to this chart about Economic cycle analysis.

In our forthcoming issue “The Financial Waves Monthly Update” we will be giving a very details observation on what we see on above charts without using any other technical indicators. It is simply prices and Interest rates that can also provide vital information as to the major trend of the market. For pricing structure visit Subscription or Contact US!

RBI Monetary policy - Impact on Banking Stocks!

RBI Monetary policy - Impact on Banking Stocks!

By Waves Strategy Advisors, For more information on daily research report visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com

RBI cuts repo rate on 3^rd May 2013 by 25 bps which was in line with many of the economist and market experts but does monetary policy drive stock prices?

In morning research update sent to our clients we mentioned the following, “In 2013, markets have closed negative on positive news and over past 2 times prices closed down on day of repo rate cut by RBI. 12 months Bond yield currently stands at 7.46% which we use to judge possibility of rate cuts. This yield indicates a possibility of 25 bps cut in repo rate at maximum and also a probability of no repo rate cut. In previous policy meeting a very important top was made at 6110 on policy day and ……..”

We continue to believe that events do not drive prices of stocks and result only in short term spikes and eventually the original trend resumes. The below article gives overview about Banking stock SBI irrespective of the monetary policy announcement -

SBI 120 mins chart:

Waves Analysis:

As shown on 120 mins chart, currently prices are at crucial juncture as it is quoting at 61.8%retracement of the previous down move (2550-1970). A move below 2225 will infuse selling pressure which can drag prices lower till ….. which is 61.8% retracement of the previous up move (1970-2360). However, a move above ………..

In published report, we have shown daily chart of SBI along with explanation to give the overall trend outlook in addition to short term 120 mins chart.

As per wave theory, prices completed wave (A) in the form of double zigzag pattern at 1970 and it is currently moving higher in the form of wave …..

In short, prices are currently at important juncture. A move below 2225 will confirm a short term top is in place whereas a close above ……… will open more upside possibility.

The above chart and explanation clearly indicates that the stock has moved exactly as per its trend irrespective of the monetary announcement. Prices are currently quoting at 2230 exactly at the support shown on the chart above. A closing will provide more clues on the overall trend for this banking heavy weight. 

Do not trade based on partial information but trade objectively and know crucial risk management levels. “The Financial Waves” daily equity research report gives holistic view on Nifty and different stocks.

By Waves Strategy Advisors, For more information on daily research report visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com

Bond yield helped us predict cut in repo rate by 25 bps!

Bond yield helped us predict cut in repo rate by 25 bps!

By Waves Strategy Advisors (www.wavesstrategy.com). For more information write to helpdesk@wavesstrategy.com or call on +91 9920422202

The following excerpt was published today morning in “The Financial Waves research report”before equity markets opened. We have been using 12 month bond yield to forecast RBI stand on repo rate and have been perfectly right even this time in expecting 25 bps cut!

Bottom Line: Bond yield indicating a plausible rate cut by 25 bps! We have been successfully using Bond yield chart to predict RBI action on repo rate. We have been successful in expecting no rate cuts over past few quarters.

12M Government Bond Yield:

Above is the chart of 12 Month Government Bond yield.  We use this chart to predict the next action of RBI monetary policy on repo rate. Generally, Bond markets act as a leading indicator for the government action. Last policy was announced on 18^th December 2012 in which we have been right on no rate cut in repo rate.

Looking at chart we find that since June 2012 to December 2012 yield was moving between 7.90 and 8.10 levels. For the first time since June 2012 yield has moved below 7.90 levels and closed at 7.78 yesterday. This indicates there can be a probable rate cut by 25 bps. However, if Bond yield would have been near 7.70 levels this would have increased our conviction towards rate cut.

In short, Bond yields are indicating repo rate cut by 25 bps – from 8 to 7.75. It will be important to observe how equity markets react to this widely expected move by RBI.

To know what lies ahead for Indian equity markets and the crucial levels that will determine the trend ahead for Nifty write to us at helpdesk@wavesstrategy.com or call on +91 9920422202. For more information visit www.wavesstrategy.com 

RBI Monetary Policy: Repo Rate unchanged!

Following was published in "The Financial Waves" research report by Wave Strategy. For subscription write to helpdesk@wavesstrategy.com or visit www.wavesstrategy.com

Bottom Line: Nifty hovered near the support of 5840 level. RBI monetary policy will provide the direction ahead.

The following was published in “The Financial Waves STU” on 18^th December 2012 before equity markets opened.

12M Government Bond Yield:

Above is the chart of 12 Month Government Bond yield.  We use this chart to predict the next action of RBI monetary policy on repo rate. Generally, Bond markets act as a leading indicator for the government action. Last policy was announced on 30th October 2012 in which we have been right on no rate cut in repo rate.

Looking at chart we find no major movement in 12M bond yield and hovering near 8.02. In the last monetary policy bond yield were moving near same level and we did not have repo rate cut. So it is highly possible that today RBI will not cut repo rate in monetary policy.

It will be important to observe if Bond markets have been right even this time in predicting no repo rate cut and the reaction by equity markets after the announcement.

RBI Monetary policy: No repo rate cut as expected by Bond market…

RBI Monetary policy: No repo rate cut as expected by Bond market…

The following was published in “The Financial Waves STU” on 30^th October 2012 before equity markets opened by Waves Strategy Advisors. For more information visit www.wavesstrategy.com

Bottom Line: Nifty sustained above the support of 5620 and formed blue bar. Reaction to RBI monetary policy will provide further information.

12M Government Bond Yield:

Above is the chart of 12 Month Government Bond yield.  We use this chart to predict the next action of RBI monetary policy on repo rate. Generally, Bond markets act as a leading indicator for the government action. Last policy was announced on 17^th September 2012 in which we have been right on no rate cut in repo rate.

Looking at chart we find no major movement in 12M bond yield and hovering near 7.95. In the last monetary policy bond yield were moving near same level and we did not have repo rate cut. So it is highly possible that todayRBI will not cut repo rate in monetary policy.

It will be important to observe if Bond markets have been right even this time in predicting no repo rate cut and the reaction by equity markets after the announcement.

RBI Monetary policy...

RBI’s action was no surprise to us. Infact 12 month Bond yield helped us to predict there will be no rate cut in the monetary meeting held on 31^st July 2012.

The below research was first shown in our Equity Financial Waves report published on Monday morning before markets opened. For more information write to us on  helpdesk@wavesstrategy.com or visit www.wavesstrategy.com 

Bottom Line:RBI monetary policy eyed by most of the traders to determine if there will be repo rate cut announced that can act as positive trigger for stock market…

12M Government Bond Yield:

Chart courtesy: Bloomberg

 The above chart is of 12 Month Government Bond yield. We have analyzed this yield for past years and noted that this Bond yield normally leads the government actions on repo rate. We can see that the repo rate cut by 50 bps on April 17 was indicated before itself. The bond yield fell from 8.40 levels to 8.10 level prior to the rate cut was announced. On June 18, when no rate cut was announced Bond yield was hovering around 7.90 levels. Currently as well the 12M bond yield is at 7.93 levels which indicates there will probably be no repo rate cut by RBI in the meeting scheduled on 31^st July 2012.

On June 18, Nifty opened almost 40 points higher at 5174, made a high of 5190 and when no rate cut was announced market reacted sharply lower towards 5041 finally closing at 5064. There was a swing of 150 points on intraday. As per wave structure, market was in corrective mode then. Currently as well Nifty is moving up in corrective minor wave b and similar behaviour and volatility can be expected.

If the bond yields would have been around 7.5 to 7.75 levels we would have been optimistic about rate cut but the above chart is indicating otherwise.

Please note the future is probabilistic and based on the assumption that the above bond yields are tracking government actions closely. This research shall be used only as a caution sign and actions should be taken on price confirmations…