Nifty-Technicals January 19 to 23, 2015

January 12 to 16 was a roller coaster, with a totally surprising Reserve Bank announcement of a 25 basis point reduction in interest rates on Thursday and signaled it could cut further, amid signs of cooling inflation, provided the government continues to take steps to contain the fiscal deficit.

This was our observation last week...

“Looking at the weekly momentum, it seems to have lost its upward zing a bit....

So we have an interesting week ahead. My bias is a negative for a low formation and improvement towards the weekend. Next week maybe we have another low (double bottom or lower low) after which the much expected wave c upwards may begin. This might well happen when Mercury is well and truly retro.  "

As expected, from a high of 8356, during the week Nifty formed a low of 8237 on January 14th and within the next two days reversed powerfully to hit a high of 8527 the very next day before closing the week on Jan 16, on 8514...A remarkable turn of events indeed.

So what is in store for this week?

Let us look at the technical picture first….

Nothing has changed as far as the wave counts are concerned. The sudden spurt last week has simply made wave b of b a little longer.Also the horizontal triangle expectation now does not exist..On the other hand, inside wave b we see an expanding triangle formation.We still continue to expect wave b of b to top out and commence c of b downwards..

Let us look at this daily chart a little more closely...

We see that wave a from 7724 to 8627 took 31 days.Wave b from 8627 downwards has so far also consumed 31 days and we still have the last  leg downwards, ongoing,...wave c of b.

Wave c of b has begun from 8446 down. This a leg was quite violent and from 8065, b leg has opened upwards. It has so far consumed 466 points and has reached up to 8531.While wave a, ( 8446 down) was a 3 day affair, wave b has so far taken, 7 days, with maximum movement in the last two days.( actually one day, on Thursday). So technically, wave b has taken more than twice the amount of time as wave a and so it quite mature, may be ready to top.This entire abc formation is taking the shape of a flat with a normal b wave so far.Upto 123.6% of wave a is considered normal for wave b.

So wave c of c of b should begin down sometime this week.

Only after that, do we expect wave c of xabc to open upwards. 

Looking at the momentum charts,

All the momentum charts are showing an uptick, which means there is some more upside left before a turn down.However the weekly momentum chart is hinting the possibility of a fractal repeating itself. Momentum ticks are also close to the respective red bands...

Drawing Gann lines and arcs on the medium term chart of Nifty, we cautiously expect that Nifty may face a down cycle immediately, followed by a volatile cycle with positive bias and a clear green trend  from end of March 2015.

To sum up, our technical outlook for the week is that Nifty may go up some more, but top out sometime early this week and seek lower levels. We may book profits if and only if we see three continuous down ticks on the hourly charts.

Happy trading !