Nifty – In a stealth bear market!!!

Nifty made a high of 6230 on 20^th May 2013. The move up broke the levels of 2012 and 2013 and made high at the level which was last seen in November 2010.

Prices reversed on the same very day after making this high and have been down by more than 250 points from there. Even though Nifty and Sensex made new highs for the year the broader market did not show any participation. The below chart of NSE Midcap index clearly shows that this index retraced on upside by only 61.8% when Nifty touched new 2 year highs.

The below chart shows a classical inter-index divergence. Nifty touched new highs for the year butMidcap index failed to do that and turned down.

NSE Midcap and Nifty chart:

Why we say Indian equities are in a stealth bear market!

Please check the below Advance decline line chart. This chart clearly indicates that the Advance decline line has touched new lows even when the index has been moving higher. This clearly indicates that the majority of the stocks has been moving down against the direction of Nifty 50 index.

Chart courtesy: icharts.in

In today’s morning report of “The Financial Waves” we mentioned following:

The overall breadth of the market deteriorated drastically on Thursday when markets fell by almost 130 points. The Advance decline ratio has fallen below its previous lows which was seen when the index was at 5477 levels. This continues to indicate that we are in a stealth bear market where the major Nifty index is not reflecting the true picture of the overall health of Indian equities. Barring a few heavy weights many of the stocks have moved below not only its 52 week’s lows but also are trading at life time lows. This does not necessarily mean that the stocks are cheap as it is a relative terminology and should not be used in absolute manner. A fall further in these stocks will make them even cheaper compared to current price. Case in point – Do not try to bargain hunt stocks that are falling unless we see significant reversal in price as nothing is cheap in stealth bear market!!!

This is not it. There is much more to the current market scenario. We have shown 4 charts for Nifty and Midcap index in today’s morning report that gives a clear view on the current market situation and what can be expected over near to medium term. Get access to these research reports by writing to us at helpdesk@wavesstrategy.com. Visit www.wavesstrategy.com for more information.

Nifty Elliott wave analysis - Is this start of next major trend?

Nifty Elliott wave analysis - Is this start of next major trend?

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

Nifty has fallen by more than 100 points as of now with major blue chip stocks trading at day’s low and down by more than 3%. 

This has happened exactly at the time when the expectations in the market again started for upside targets of 6700++ levels. We have been constantly warning our readers of “The Financial Waves” equity research report of an impending top and we clearly stated that we will not buy into the euphoria and story for Nifty touching new life time highs. The below brief notes are picked up from our recent issues of Equity research and read it yourself to see why it is important to use objective tools like Elliott waves, Sentiments, Channels…

SBI and LT the 2 major index stocks are down by more than 6% and the argument can be made that it has fallen based on poor result earnings. I do not disagree to that but there are other stocks as well that has no news associated with them and are down by more than 6%. We continue to believe that the event can produce only short term spikes but the major trend eventually resumes. To trade profitably it is important not to rely on news since the outcome and reaction can be random but use other well defined objective techniques.

On 21^st May morning report we mentioned: Nifty daily chart shows minor negative divergence on RSI indicator near 70 levels. There is already a lot of euphoria created for markets to reach life time highs and probably cross 6700 ++ levels on upside. We continue to adopt contrarian view looking at the significant lack of momentum and a very few indices or stocks participating in the current rally. As long as this continues we should continue to see a distribution formation andstocks moving out from strong hands to weak hands.

On 22^nd May morning report we mentioned: Indian markets have been ensuring that as soon as strong bullish sentiments are created and maximum number of analysts start coming out with Nifty targets of more than 6700 levels prices reverses just to fade away the positive outlook. We are closely monitoring if the same happens even now. For us only a close above 6450 along with pick up in overall breadth of markets, participation from not just 1 or 2 sub-indices but a healthier inclusion of sectors will force us to come out with upside bullish levels. Till then we are looking at the current scenario as topping…. Aggressive selloff from current levels will indicate major top is in place trapping the bullish traders exactly at the wrong time yet again!

On 23rd May (today) morning report we mentioned: Nifty had a gap up opening of more than 20 points but prices failed to sustain the gap and selling accelerated during second half of the trading session. Prices made high of 6148 and closed below the support zone of 6100 – 6110 levels. This indicates that the near term trend continues to be negative.

………. this time the move up from 5970 to 6230 has been very steep unlike previous tops which were made on back of slowing momentum and more than 2 to 3 divergences. The top made at 6100 on January 29^th 2013 had a very clear wedge pattern formation with 5 divergences on daily chart. The top made on 11^th May 2013 at 6114 again had very similar setup, divergences, Fibonacci retracement levels and channel break  which helped us to capture the down move of almost 150 points which unfortunately did not realized into bigger downtrend and prices reversed. But this time the move up has broken above the levels of 2012 and 2013 and made high at the level which was last seen in November 2010. So this time we do not have the luxury of near term price data to have high conviction whether the top is in place. Secondly the previous pivot low is at 5970 levels which is almost 260 points below the top and as we said before it is ideal for prices to break this pivot low to confirm larger downtrend has started. However from trading perspective such far away levels can be challenging from Risk Reward perspective. During such scenario the best practice is to have less leverage and keep trailing short positions with prudent stoplossso that if short term trend gets converted into larger downtrend one can ride it on downside or if the trend reverses back on upside one can exit by locking in small profits or at breakeven levels and not losing anything. …..

We published an interim update as well to our readers that stated following: Nifty has retraced the complete up move from 5970 to 6230 in faster time. Apart from short term trend the major trend has also probably changed to down for the year. Avoid creating any fresh long positions and use trailing stop method for existing short positions to ride the trend!

We will publish the downside projections in tomorrow’s report with crucial risk management levels. Stay tuned!!!

For more information on subscribing to equity research report write to helpdesk@wavesstrategy.com or visit www.wavesstrategy.com

The Financial Waves Interim Update

The below Interim update was published by Waves Strategy Advisors to equity clients. For more information on daily research report - "The Financial Waves" visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com.

The Financial Waves Interim Update

Bottom Line: Nifty has retraced the complete up move from 5970 to 6230 in faster time. Apart from short term trend the major trend has also probably changed to down for the year. Avoid creating any fresh long positions and use trailing stop method for existing short positions as per levels mentioned in report to ride the trend!

We will publish the downside projections in tomorrow’s report of "The Financial Waves" with crucial risk management levels. Stay tuned!!!

DLF: Power of Failed Pattern!!!

DLF: Power of Failed Pattern!!!

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

There are various patterns in technical analysis. To name a few - Head & Shoulder, Triangle, Wedge, Flag, Double tops, Double bottoms, etc.

Each of these patterns has their own characteristics and success ratio. Technical analysis is all about probability and statistics shows the probability of success and failure for these patterns. Traders normally bet only on the direction of breakout of these patterns on the assumption that the pattern will work and reach the target as per it. This is a perfect strategy but one should also note betting on a failed pattern has better success ratio than a valid pattern. Also prices travel violently in opposite direction if a pattern gets failed.

A classic example of such failed pattern is DLF. This stock gave a breakout of the triangle yesterday but quickly reversed and re-entered the pattern before reaching the pattern target. The below chart shows DLF movement as of now:

DLF 120 mins chart:

The above chart shows that DLF gave a breakout from the triangle pattern which carries aggressive pattern target of around 275 on upside. In Triangle the post pattern implication is that normally prices travel the widest part of the pattern from the breakout. The conservative target is projected on upside from the start of the up move rather than breakout. In the above chart even the conservative target is not achieved let alone the aggressive target. Prices then quickly re-entered the pattern and started moving violently on downside. This is a classic example of failed pattern and trading failed pattern is much better as the violent move happens in opposite direction of breakout which can be clearly seen above.

We believe that markets are on the path of natural evolution and one has to be dynamic enough to understand and accommodate that evolving nature. Failure to do that can result into serious errors on part of analysts and traders!

Do not get carried away with the overly optimistic views for Indian markets. Think objectively. To know more about the daily research advisory write to us at helpdesk@wavesstrategy.com or call on +91 9920422202 / +91 22 28831358

Trading Nifty using trendlines and channels!!!

Trading Nifty using trendlines and channels!!!

By Waves Strategy Advisors, For more information on daily research reports on Equity, Commodity and Currency visit www.wavesstrategy.com or write to helpdesk@wavesstrategy.com

Trendlines and Channels are one of the very basic concept of technical analysis but at the same time extremely crucial.

Any advanced technique cannot be used in isolation by ignoring these basic important concepts. The below chart of Nifty was published on 17^th May 2013 in “The Financial Waves” daily research report. The report also showed different plausible scenarios:

Nifty weekly chart:

Wave Analysis:

The above chart clearly shows how well trendlines and channels have been working on Nifty. Prices have been taking resistances on the extended trendline since late November 2009. Thistrendline has been successful in halting the rally of January 2012, entire rally of Jan 2013 also halted just near this trendline resistance and prices are now again approaching towards the same line.

The entire fall of 2011 was also perfectly channelized and if you try drawing trendlines and channels on daily chart you will get amazing results that need little explanation.

Case in point: Advanced technical concepts should not be used at the cost of basic very important techniques that work very well in this complex trading environment.

The above article is picked from research report “The Financial Waves” of 17^th May 2013 that shows how we are combining the basic techniques along with Advanced concepts like Elliott waves. For more information on subscribing to this daily research report that has Nifty and 3 different stocks write to helpdesk@wavesstrategy.com