In our last update On Nifty we mentioned Nifty would be spending more time in the range of 7781 – 7892. The markets have now spend a week in this range. Below is our most preferred wave count:
Our most preferred wave count suggests that wave c of the three wave expanded flat correction ended with a brief test of the Mauritus Treaty Impact low like we anticipated in the report. We have since rallied again to test the upper end of the range but quickly corrected. This is why you see two labels on our most recent test of the upper end of the range. This is to signify that either:
(a) we have finished a a-b-c type expanded flat correction in which case the recent rally was wave i within wave 3 or
(b) we are involved in a more complex correction which is still playing out, in which case this recent test of range high is wave X within a-b-c-X-a-b-c type of correction.
In case of (a) we should be looking at sustainable rally above the range high very soon which should try to attempt a test of 7991. For this to materialize immediately we believe the key level of 7841 should not be broken and a rally should immediately commence
In case of (b) a break of key level of 7841 would make it very likely that we attempt a test of the range low of 7781 again. This test though may be last of the c-leg of a-b-c-X-a-b-c type correction and should be expected to be followed by a strong rally.
Sometimes while using Elliott wave theory multiple possibilities lead to same conclusion in the terms of direction of the next rally while the magnitude may vary. This makes it easier to determine the trend and take positions.
In this case however we have to observe the key level of 7841 to determine the next probable short term move of the market which may resolve the longer term picture as well.