While our last update on Nifty dealt with a new probable trend emerging in the stock markets, the trend we are seeing in Nifty IT index in all probability will be stronger. On a relative basis this new trend is likely to continue and if it does it would only confirm that we might have a substantial low in Nifty in place. The chart of Nifty IT is shown below:
From the chart above it is clear that this is another ending diagonal in action. The ending diagonal in Nifty we mentioned in our last post was on a relatively short term time frame. The pattern we are seeing in Nifty IT though has taken close to 5 months to come to its conclusion. But this is not all, the end of this pattern also signifies the end to the correction this index has witnessed from its March ’15 highs (an A-B-C type correction not shown on this chart). So the new trend that is emerging is going to mark an end to a correction of high degree. The implications of which are extremely bullish.
The chart indicates two scenarios, we consider scenario 1 to be the most likely scenario since the break of the 2-4 line has already taken place. Scenario 2 is still a possibility and we are allowing ourselves this room because we are trying to call a bottom for a correction that has consumed close to 10 months.
If Scenario 1 is in action as we are suspecting, the new emerging trend could become a specially potent uptrend. This is so because the end of wave 5 in scenario 1 has happened with a truncated wave. A truncated wave appears when the price action slightly deviates from its ideal price action because the emerging trend is so strong that it expresses itself as truncation. This is in contrast to the throw over price action in a similar pattern that is in play in Nifty as mentioned by us in our last post. Readers can compare the two price actions and understand why Nifty IT may end up out performing Nifty if Scenario 1 unfolds as we are expecting it to.
While our long term bullish expectations in Nifty has been reinforced across our articles for some time now, we would also like to warn the readers that this rally may not be equally good for all sectors. There are specific sectors in the stock market that may highly under perform when compared to Nifty. Many of these sectors are mistakenly appearing to be value buys to many investors, simply because of the extent by which they have fallen. There are specific stocks and sectors the investor should avoid so that they can benefit the most from the next major rally in the markets. We will keep the readers updated on such areas progressively on our blog.
In our next article we will delineate our high probability long term Elliott wave count for Nifty and revisit our medium term Gold wave count that has been the reason behind what me seem many a very surprising rally in Gold. The long term forecasts based on Nifty, Nifty IT, Gold and US yields, are pointing towards some likely outcome expectations from the US Fed meeting scheduled for 26-27 January.