The failed potential triangle (per last post), led to a swift fall in markets. The triangle pattern as such is a great price pattern which provides specific price targets & stop loss price. However the relatively under-rated feature of this pattern is how often the ‘reverse trades’ on break of stop losses work out very well using the same ‘measurement’ technique applied on the opposite side, once the pattern fails.
However, the purpose of this post is to try & classify the current trend. The base case for the entire move from June 3 to Aug 23 can be classified as a 5-wave down move (shown above). The simple implication is that in the short term we may expect a correction of this down-move, followed by another leg down. This up move from Aug 23 lows has been swift but hasn’t quite hit the 38.2% price retracement level of 11197, which is the minimum price target for such corrections. Also time wise the market hasn’t taken ‘enough time’. Typically a correction of this degree should take at least 38.2% of time taken to complete the impulse wave. This would mean the current corrective should last till Sept 25th at least, before we see a much deeper move below the August 23 lows. This implies price-wise we are very likely to see 11200 and potentially the 11370 level on Nifty.
A less likely possibility is that this 5-wave down move between June 3 to Aug 23 may be part of ‘c’-wave of 3-wave flat correction , which would imply the worst may already be over for prices and we may be headed to a new high. But from a short term perspective either possibilities point to ‘higher prices’ in the coming weeks. Once more price action materializes as part of the current up-move, the price action for the up-move might help us be more confident of our wave counts.
Considering this analysis and the fact that Nifty volatility is relatively high, we may have a case for initiating short straddles/ strangles or iron condor for Sep expiry considering we trading around the ‘mid-point’ of the potential up-move that is likely to last till late September.
