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Sensex & Nifty Update

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You may directly jump to the end of the post for conclusion in case you are not comfortable with the complexity of our explanation. However we strongly encourage you to read the post in its entirety so that you understand the basis for our analysis and preferred wave count on Nifty & Sensex. The post follows:

Sensex & Nifty made new highs but couldn’t sustain it. The sharp sell off of today has traversed 154 points for Nifty and close to 500 points on Sensex. Below is our working wave count for the recent price action:

Nifty

As per our most preferred wave count we may be in the Y leg of a complex correction in play as part of wave (ii) within wave 3. The equality based target for this leg comes close to 7712 for Nifty. The wave (i) of 3 started from 7517 from Nifty and reached 7978. So far the prices have already reversed more than half the gains of (i). At the end of wave (ii) we anticipate a move towards 8000+ levels. However the recent sell off has been strong, and while such a strong sell off is common as part of (C) leg of a correction, we do need to consider what is playing out in other markets:

  1. Gold is attempting a rally in accordance with our forecast of $1343 and ultimately $1410-20 levels for the precious metal.
  2. Oil rally has signaled some sort of exhaustion but it is still too early to reliably call a sustainable sell off

Correlations between asset classes are not consistent as they tend to break down from time to time. Also an oil sell off may not necessarily be bad for Indian Markets, as it provides cushion for further interest rate cuts. Similarly the Gold prices should also head lower once it achieves our targets (and may be overshoots a little to say $1440 levels). In backdrop of this it is not possible to form a definitive conclusion on our preferred wave count for Nifty based on our other forecasts. Below is our preferred wave count for Nifty since March lows:

Nifty

Here we have also used the OBV indicator. As is clear from the chart, new highs on the indices have generally been followed with new highs on the OBV indicator. The same however cannot be said for the fall from highs of (i). This is so because today’s fall has failed to make a new low on OBV compared to the low made on 25th/ 26th. This is an indication of divergence within this correction and continues to support our current preferred wave count which has served us very well since the March lows for the indices. A break down below the trend channel for the indicator may cast doubt on our wave count for Nifty. Although unfortunately we won’t be able to discard the wave count until prices break their 11-April lows of 7517. As wave (ii) can retrace up to (but not beyond) start of wave (i) as per Elliott wave theory.

Hence it becomes very important that this sell off doesn’t sustain for long and Nifty reconquers 7800 levels soon (although we do give a leeway for prices to carry to 7712). In cases prices do manage to break down we may need to revisit our long term wave count for Nifty (and it might result in a sharply contrasting forecast that may mean more pain for investors before sustainable long term gains). This though is not a preferred scenario given the evidence before us so far.

Conclusion: Very important for markets to regain 7800 levels and sustain for next leg of our rally to materialize. But investors need to exercise caution as a further sharp sell off may mean more pain for the investors before any sustainable gains in the market. As per evidence before us so far, we stick to our preferred wave count for indices which has served us well since March lows. We continue to anticipate new highs for Nifty beyond 8000 levels.

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