Nifty/ Sensex: Medium Term Elliott Wave Count

Our Valentine’s day report on Nifty outlined a possible Elliott wave count for Nifty. Specifically we were looking for an end to a possible triple zigzag correction. The markets since have posted a spectacular rally. As our regular readers would know many times we track multiple possible wave counts for a market. Accordingly we received some requests for an alternate wave count we are tracking, more specifically with bearish implications. Here we elaborate the alternate wave count and also the investment strategy to make rational decisions based on the various possibilities.

Here is our most preferred wave count for the correction since March ’15 to March ’16:

Based on this our assumption is that we are in wave iii of 3 and this rally should be easily able to take out the march ’15 highs and run substantially higher.

Here is the alternate wave count:

As per this alternate wave count the March 2016 low was Wave Y (end of a double zigzag) and there are two possibilities:

(a) We may be in another X wave of a triple zigzag with Z leg down due to start at end of X wave. This Z-wave if it materializes could take the markets back to test the March 2016 lows.

(b) We have ended a double zigzag correction and have begun (iii) of 3 having the same future implications as our most preferred wave count.

The possibility of further fall in Nifty elaborated in (a) above would be invalidated if we are able to breach 8655 levels (which is the previous X wave high). But considering the alternate possibility, it would be prudent to stay cautious until we are able to breach this level of 8655.

In the short run though Nifty look set to test 8134 as per our last post. In order for our preferred wave count to stay valid it becomes important for nifty to stay over 7896 levels and in no case should it break below the more crucial swing point of 7715, as it would increase the odds of scenario outlined in (a) above to materialize.

Investors may avoid new investments in the interim until we see a breach of 8655. It may be also prudent to book partial profits on further rallies / re-balance portfolio by weeding out under-performing stocks which might have managed to recover their value due to the rally from late Feb/ Early March lows. This would safeguard one if we indeed see a Z-leg materializing as per (a) above, as it would be sharp and scary, but would still be a great buying opportunity for the bull market ahead.

We will continue to provide updates at crucial turning points for the market based on the short term price developments and try to keep our readers ahead of major price developments.