Nifty has rallied higher since our last update, but the market hasn’t been able to extend this lead much further in the last 7 sessions. In the process Nifty crossed the first target zone outlined in our last update, but so far hasn’t been able to reach our second target zone around 8876-8910. If the markets are looking for a major reversal, amplitude wise the current rally is sufficient.
In the last update we outlined two of our probable wave counts, but weren’t able to pinpoint the next major move with confidence. Thankfully since then we have seen some developments that may provide us an early warning signal in case of a reversal. Chart Below:
We have outlined a trend channel and the price action of the rise from December lows has so far been within this channel. It is common for impulse waves to be able to accelerate above such trend channels. In contrast corrective waves are often contained within the trend channel. Hence, this channel may help us determine the medium term trend for Nifty (and possibly help us in eliminating one of the wave counts). Essentially if this rise from Dec lows is a correction (of the preceding downtrend from September highs) then we may expect this channel to break to the downside. Alternatively, a sustainable acceleration above this channel and/or a break of September high would imply that the bullish wave count is probably correct.
This channel has sufficient room on the upside for our measured price targets to be met without the channel being broken to the upside. Hence we may still see a move towards the 8876-8910 zone. However the chances of this happening would be very low if the crucial 8715 level is broken. The next crucial support for the medium term trend is at 8537. If any fall materializes and we test this level it is very likely that this level would also not hold for very long.
We feel that the break of trend channel to the downside will imply that we would probably be heading back to December lows. Hence, we should track this channel very closely.
Also, the Nifty India VIX has been trading near multi-month lows. Historically we have seen these levels of VIX to coincide with measure turning points. Hence we may expect the volatility in the markets to pick up soon. Possibly as soon as this week or early next week. However, tracking this trend channel should be enough for us to figure out the next big move with high degree of confidence.