Nifty bounced back from 76.4% Fibonacci retracement at 7960, Elliott wave structure of up move crucial!

Bottom Line: Nifty continued to move higher but formed a DOJI bar on Friday. Weekly bar has still formed a negative formation.

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Nifty daily chart:

  

Nifty 60 mins chart:

Wave Analysis:

In previous update we mentioned that, “In short, close above 8210 - 8215 is important to start deeper correction on upside towards 8380 level where 61.8% retracement is placed of the prior fall. Also it will be important to see the overall breadth and sustainability if Nifty has another Gap up opening!”

Nifty had another Gap up opening on Friday and touched intraday high of 8263 levels. Prices consolidated within the range of 8200 and 8260 for the rest of the day. A very important observation is that Midcap and Smallcap sectors opened strongly but later closed near the day’s low. The overall breadth was also only marginally positive. This behavior is peculiar to wave b formation which is retracing the down move from 8627 to 7960 levels.

As per weekly bar technique, for the third consecutive week prices were unable to take out the high of prior week and closed on the negative note. For weekly trend to turn positive prices have to close above 8265 which is previous week’s high by end of the current week for uptrend to continue. Nevertheless, over short term as prices have given Gap up move on Thursday and Friday the short term trend is positive.

After V shaped recovery prices tend to take important support and resistance near Bollinger Bands®. So we have applied this technique on hourly chart. The resistance as per this technique is now near 8320 which is also the previous pivot area and the support continues to be near 7960. The Bollinger Bands width has drastically increased to rise in volatility and should narrow down over next few days giving more accurate turning areas.

From wave perspective, we are expecting the current ongoing move as wave b formation which can retrace anywhere near 8370 to 8470 levels which is the 61.8% to 76.4% retracement levels. However, it will be crucial to observe if prices continue to protect the recent Gap areas. On downside as long as 8080 level is protected the upside correction can continue.

In short, the near term trend is positive for now as long as the Gap area near 8150 followed by 8080 is protected. It will be crucial to see if this rally can extend beyond 4 days. We will keep an eye on broader market and high beta stocks for more clues on the overall strength.

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