Nifty and Reliance Industries correlation and breakout zone!

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

Date: 24th March 2014 morning report

Nifty formed an inside bar smaller than the previous bar. Reliance and Nifty both at crucial levels! Nifty levels to watch are at 6580 and 6430. The below research gives a brief overview on correlation between Reliance Industries and Nifty.

Nifty, Reliance and Ratio daily chart: 

Wave Analysis:

In previous update we mentioned that “In short, there is no change in our outlook as of now which is sideways to topping. Even the stocks are not providing a clear direction. Break of crucial levels shown on chart will determine the trend over short term and intensity of the movement will indicate medium term outlook”

Nifty continues to move in 35 to 40 points range. On Friday, the movement was confined between 6520 and low near 6485 thereby forming an inside bar. It has been 9 days and prices have swayed between 6575 and 6430 which is a movement of 135 points in totality. Saturday was a short trading session and hardly produced any movement.After the sharp up move of 3 to 4 days markets are ensuring to form a challenging trading environment. During sideways action the best technique that works is Bollinger bands and we have used it prudently. The short term wave counts have 2 to 3 different possibilities even now and channeling technique is suggesting there is not much room left on upside. Nevertheless looking at sideways action after sharp rise there is still a possibility that one minor leg towards 6580 – 6630 might be pending. On contrary, violent break of 6425 will indicate atleast retracement of the up move from 5980 to 6575 has started. A slow and sideways drift below 6425 will not carry much importance. So it will be important to see the intensity of move when 6580 or 6425 is broken.

Nifty and Reliance Industries correlation:

On the 1^st chart we are showing similarity of pattern between Reliance Industries and Nifty. Both the stock and index looks to be forming a triangle pattern. This corrective pattern is ongoing since 2008 onwards. The reason of comparing the index with Reliance Industries is that we think this can be one of the stock which will be leading the index in next Bull Trend. So a breakout on RIL will indicate a breakout on index as a very high possibility. However, even this time RIL came close to the strong resistance zone near 910 – 930 and reversed back on downside. It has been more than a year since this stock is moving within the range of 770 – 930.

Reliance is forming a symmetrical triangle whereas Nifty is forming more of an ascending running triangle pattern. To get confirmation of triangle breakout we should see a sharp and violent rise after the breakout and if the momentum continues to be slow and dragging even if the trendline is broken we will look at it only as the part of the pattern formation.

Even though Reliance has been a major laggard post 2008 but the correlation has been very high with index with each major turning points happening within few months horizon. The ratio of Reliance / Nifty (red line) shows that the gradual reduction in slope of the fall indicating that thee underperformance has been constantly reducing. A break above 0.16 level will be first strong positive sign that Reliance has started the period of strong outperformance for months to come.

In short, expect a breakout to occur in this week as the sideways correction is already 9 days old. Also a close watch on Reliance Industries is imperative in case this stock leads the direction of movement for major market. Till that happens patience will be warranted!

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

ICICI Bank: A big triangle pattern since 2008!

The below research is picked from "The Financial Waves" daily research report by Waves Strategy Advisors. For subscribing to this report  which has Nifty along with 3 different stocks visit http://wavesstrategy.com/index.php/store.html

ICICI Bank Weekly chart: 

            Wave Analysis:

In last trading session, we observed strong buying in Indian Equity Markets. Bank Nifty and PSU Bank were up by almost 3.5% each. ICICI Bank was up by more than 5%, which suggest upside momentum is building up in this stock.

As shown in weekly chart of ICICI Bank, from last 3 weeks prices are trading in the range of 1090 and 1000. Yesterday’s up move has brought prices near the upper resistance of the range. So, any move above 1090 is necessary to continue this up move, otherwise more sideways action is possible.

As marked on weekly chart, prices are moving higher in intermediate wave B and have already retraced more than 61.8% of the intermediate wave A. Hence, indicating that it is moving in flat correction pattern. As per this wave counts one leg should come on downside in the form of intermediate wave C. However, this scenario remains valid as long as 1250 is intact on upside. Any move above 1250 will indicate that triangle pattern which is since 2008 completed at 750 in the form of wave E and moving higher in form new wave structure. But, as of now we have not got any confirmation, so above mentioned counts remains valid.

As per time perspective, yesterdays up move has retraced prior down move from 1090 to 1010 in faster time. If, today we see closing above 1090 then it will provide confirmation from time as well as from price perspective.

In short, as long as ..............is intact positive possibilities are open. Any move above........

To know more and short term charts as well subscribe to the daily research report "The Financial Waves Short term update" by visiting http://wavesstrategy.com/index.php/store.html. 

A Triangle Breakout!

Nifty 240 mins

Nifty 60 mins

Explanation:
Previously we have shown our prefered and alternate scenarios. At that time the pattern was not clear and also the direction that Indian markets will take was quite tricky. But in past few days movement we can see a triangle formation in Nifty along with many other stocks.
Markets finally gave breakdown below 5400 and traders who were playing the range on Indian markets would have been surprised by the move. Break of 5400 breaks many crucial support levels and trendlines as shown.

An important thing to observe is that the global markets were strong on Friday and we were the only one of the few markets globally that closed in red. This confirms that we are still moving independently without much relation to global movements.

We now expect selling pressure can accelerate and we might see 5200 levels before any meaningful bounce back. 5475 should now be kept as a crucial Risk management level and we should hold on to shorts as long as this level is not taken out on upside. We will re-evaluate the pattern if 5475 is broken on upside but this looks like a low probable scenario.