Thursday, April 28, 2016

Nifty: Application of ADX indicator, Andrew Pitchfork, Channels, Moving average difference

Bottom Line: Nifty moved in a narrow range in yesterday’s session. Short term trend will continue to be positive with 7820 as important support. 

Nifty daily chart:

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:

In previous update we mentioned that “Close above 8000 will result into positive trend towards the channel resistance placed near 8150 - 8200 levels with yesterday’s low near 7820 as an important support”

Nifty did hit new high for 2016 by touching 7991 levels on intraday basis. The movement continued in stock specific manner with Banking index that was leading the way up showing some correction in previous session.

During such times it is important to apply different techniques and see if momentum is building up or not for much higher levels. The first daily chart of Nifty shows modified blue channel which is connected from the unorthodox top given the fact that correction on downside as per the wave theory started from that truncated high made in April 2015 at 8845. The next resistance zone as per this channel is now near 8150 levels.

Also, Moving average difference indicator shown below is now at a difference of 150. The strongest of the momentum was seen on 28th January 2015 with MA difference value of 270. It will be only on decisive break above 8150 followed by reading of 270 on MA difference indicator that will indicate the index is indeed headed towards much higher levels even if it is in corrective fashion.

ADX Indicator: This indicator measures if a trending move is about to emerge. We can see that the value of this indicator continued to move lower during the entire uptrend until recently. A sharp fall followed by a rise results into a non trending move over medium term and so we are seeing such lower value on ADX. A continuous rise on Nifty above 8150 will probably break the value of 25 – 30 which normally signals a trending move.

Andrew’s Pitchfork: A very important channeling technique that plots the channel based on standard deviation and mean trend is shown in red color. The entire up move is contained within this red channel. Break below 7820 will break the lower trendline and provide first negative confirmation. But as long as this level is intact short term trend will continue to be positive and move above 8000 will provide further confirmation.

Over short term, as shown on daily chart, it is not clear if wave (b) is indeed over or not. Today being the expiry volatility around this psychological level cannot be ruled out. Decisive move above 8000 can result into short covering that can drive the trend towards the channel resistance again placed near 8150 – 8200 zone.

In a nutshell, all of the above indicators are pointing towards 8150 – 8200 as very important level on upside. Strong break above these levels along with extreme reading on momentum indicators will confirm that the medium term trend is extending further from here. Failure of prices to cross this zone and divergences on various indicators from here on will send across cautious sign. Next few days of price action will provide a clear conclusion. For now, over short term break above 8000 will continue the short term positive trend towards 8150 with 7820 as important support.

“The Financial Waves short term update” research report is published on daily basis that shows detailed Elliott wave structure applied along with other technical tools and advanced concepts on Nifty, Bank Nifty, stocks. For subscription options visit Pricing Page.

Wednesday, April 27, 2016

Nifty: Can you identify an impulsive or corrective pattern?

Elliott wave is all about recognizing the patterns. The first level of pattern segregation is to understand whether the rise is impulsive or corrective. An impulse pattern should consists of 5 sub-waves with waves 1,3, and 5 traveling in direction of the bigger trend and waves 2 and 4 correcting the prior impulse trend. Also as per basic Elliott wave following are the three rules that should be followed:

1. Wave 2 cannot retrace complete of wave 1

2. Wave 4 cannot enter into territory of wave 1

3. Wave 3 cannot be the shortest among the impulsive waves 1,3,5

When all of the above basic rules are followed then the pattern qualifies for an impulse pattern as per basic Elliott wave. Using Advanced Elliott wave – Neo wave a valid impulse pattern has to follow more than 15 rules. For now let us focus only on the basic rules and see if Nifty has been showing impulsive or corrective rise:

Nifty 60 mins chart:

The above chart of Nifty shows the rise from the lows of 6825 which is channelized. Now try to identify the pattern!

The rise does not have 5 waves following even the basic rules of Elliott wave forget about applying the advanced concept of Neo wave for pattern identification.

So the pattern is corrective. Now we have to identify whether it is a Zigzag, Flat, Triangle or Complex correction. Looking at the number of subdivisions and overlapping structure there is high probability that the complex correction is under formation. The next step will be to label the complex structure with internal counts. Always remember that pattern takes precedence over internal wave counts.

Now when you understand the pattern can you systematically label the internal counts which will in turn help in taking trading decision?

“The Financial Waves short term update” research report is published on daily basis that shows detailed Elliott wave structure applied along with other technical tools and advanced concepts on Nifty, Bank Nifty, stocks. For subscription options visit Pricing Page.

Tuesday, April 26, 2016

Nifty can continue to consolidate before a strong trending move!

Bottom Line: Nifty failed to move above the zone of 7980 – 8000 as expected and drifted lower. Short term trend will be sideways to negative.

Nifty daily chart:

Nifty 60 mins chart:

Wave analysis:

Nifty traded in red territory from the opening hour itself. Prices failed to show any positive attempt and broke previous week’s low as well. This confirms that the short term retracement of the up move from 7517 to 7980 has started.

As shown on daily chart, we have been bullish all the way from 6900 levels and turned cautious after seeing the corrective rise. An impulsive up move requires 5 waves internally that follows the impulse rules. Failure to show such internal counts indicate that the up move from 6825 can be a part of ongoing correction that started in March 2015.

The pattern that has tendency to break the trendline and still fails to show momentum is triangle. So there is a possibility that post the wave X seen near 8340 in October 2015, triangle pattern is ongoing and we are now in wave b of this pattern which is internally forming double correction in form of (a)-(b)-(c)-(x)-(a)-(b)-(c) as shown on daily scale. Also we can see respect for 76.4% Fibonacci level along with previous minor wave x from where the current up move has reversed. This level was mentioned few days back itself and prices are giving due respect to it.

Over short term, the up move in form of wave (a) from 7516 to the high of 7978 took approximately 5 days and so we should see wave (b) to continue atleast for 5 days or more. Wave (b) is now only 2 days old and it seems the high of 7980 should not be taken out atleast in this expiry which is also in sync with highest OI buildup at the psychological level of 8000 on upside.

In short, Nifty can continued to drift lower towards 7750 levels in form of wave (b) before the final push on upside in wave (c). Post that the downside pressure should start building up! 

So, where Nifty is heading now? Subscribe to “The Financial Waves Short Term Update” which covers Nifty and 3 stocks with in-depth research. For subscription visit Pricing Page

Wednesday, April 13, 2016

Trading Nifty based on RSI and Channels! Will mean reversion continue?

Equities have been all over the places over past few weeks. Prices have been moving sharply in one direction but only to reverse back later. During such times when there is more of mean reversion to the average rather than a trend it is better to adopt different trading technique.

Below is 60 minutes chart of Nifty that shows Channel along with RSI and Exponential Moving average:

The strongest of trend was seen post the Budget session on 29th February which lasted for only 3 days. After that the trend has been nothing but sideways with slight drift on upside.

Nifty 60 minutes chart:

As per mean reversion technique whenever prices move away from the average by a specific amount it is time to take opposite stand. However, this technique can be dangerous if a strong trend is about to emerge.

Now trading based on RSI works well during such scenario provided we have a channel to confirm the reversal zone on prices.

On above chart you can observe that RSI has been finding strong support near 30 and every time RSI reached near this zone the trend reversed back on upside. On the other side it has been 75 to 82 zone from where we have seen reversal on downside. Also such reversal has happened after a strong close or very weak close in previous session from channel support or resistance….

This gives important information on which technique is currently working. But please remember in case a trending move emerges one need to again change trading method.

Next one or two days of price action will confirm if market is still in non – trending environment following the mean reversion or it is now going to deviate significantly away from its average! These are interesting times so stay tuned!

The Financial Waves short term update” is our flagship product that covers Nifty, Bank Nifty, stocks on basis of Elliott wave, Time cycles and advanced concepts of Technical analysis. The research report is published daily before the market opens and provides charts along with explanation on Nifty and three different stocks. For subscription visit  Pricing Page

Neo Wave Chart of the Day - Just Dial

Just Dial has shown strong momentum with prices moving higher from 360 levels to 850 in just few weeks.

Just Dial 60 minutes Neo wave Chart of the day:

Neo wave pattern: Prices are moving in double Zigzag pattern involving wave x that completed near the lower trendline of the channel. Will the second corrective pattern tend towards equality with the first corrective? A perfectly channelized move so far following Neo wave pattern!