Published 8th March 2018 & validated 15th March 2018

The Nifty 50 arrived at a critical junction. The next days may be decisive whether the Nifty 50 sees another high before Indian equities enter into a cyclical correction.

Short-Term Elliott Wave Analysis

Published 15th March 2018 @ 14:30 Mumbai time

The ball is now with the bulls. The rebound from the 10,140 low can be counted as a leading diagonal. The groundwork has been done. Now, the market needs to expand further as explained in our previous updates further below. Both versions, black and red, can still play out at this stage. We still favor the black count due to potential tailwinds from equity indices worldwide.

The trade idea, which we mentioned March 8th can be optimized at this point. We trail our S/L up to the previous low 10,140. We expect a further attack of the 10,033 key level if 10,140 does not hold. It is usually better to protect capital and watch from the sidelines in such cases. The potential risk/reward ratio of the initially executed trade increases to more than 1:10 (s.t. execution risk) by this action.

Published 12th March 2018 post-closing

Indian stocks gained traction and rebounded from last week’s low. Price action penetrated the short-term trend channel to the downside, which is highlighted in pale green. This is a first good sign that 10,140 low may have initiated a reversal. Moreover, India should profit from tailwinds on worldwide equities. We describe our observations on the “Catch Of The Week” section on our main page. Odds are heavily shifting towards higher levels but the deal is not done yet.

Followthrough to the upside is now important for the next few trading days. The next signs hinting to further bullish behavior is a rise above 3.5% from last week’s bottom and crossing 10,638 points to the upside. The first action makes alternative wave ii bigger than wave (ii), which is sometimes observed but less likely than vice versa. The latter action is more important and leaves the charts with a 3-wave pattern from the January 2018 top. This makes another top likely or at least implies some leading diagonal structure (less likely) from the top, which tends to get retraced deeply.

Published 8th March 2018 at closing

The Nifty arrived at a do or die junction. The 10,033 level must hold if our bullish ending diagonal scenario (depicted in black) plays out eventually.

The alternative is depicted in red. A break of yesterday’s low most likely implies an attack of the 10,033 level. Moreover, it is critical to recognize that the red count suggests a third wave to the downside. We do not want to be caught with the wrong position within a third wave. Evidence starts building up for the red case if the 10,141 and 10,033 levels get crossed to the downside.

Both scenarios are equally possible at this stage. However, the entire setup translates into an attractive risk-reward situation. The stop-loss around for the red scenario is about than 200 points away and a potential fifth wave is more than 1000 points to the upside. That’s a 1:5 risk-reward setup.

Amended 8th March

The Nifty 50 could not build traction to the upside after its drop. The entire bounce now looks like a sideways structure. The sideways structure may be either a triangle leading to a lower low than we have seen at the beginning of February or a complex double-three as part of the second wave of minuette degree (bearish). We continue to see 2 probable scenarios for the days ahead:

  • An expanding ending diagonal leading to a new all-time high
  • Intermediate wave (1) reached its high at the end of January 2018

Medium Term Elliott Wave Analysis

Published 17th January 2018

The BRIC story seems to be confirmed from our Nifty technical analysis point of view. The Nifty 50 swiftly made up for its losses during the worldwide financial crisis in 2008. We label this action as minor wave 1, which ended in 2010.

Thereafter the Nifty elliott wave pattern shows a flatter rise in minor waves 3 and 4. The flatter rise does also translate into less progress within waves 3 and 5. Waves 1 is longer than wave 3. Therefore our expectations are smaller gains within minor wave 5 than within minor wave 3. Last but not least it is noteworthy that momentum has been degreasing over the past couple of years relative to wave 3. This indeed suggests that we are currently in a fifth wave of minor degree.

The best alternative to the scenario above is a situation that puts the Nifty in a third wave of intermediate degree. This is still possible but we need to see the trend channels taken out on increasing momentum.

Technical Analysis