Nifty Can Bounce towards 8700-8800 from 8550-8393 Range

| October 14, 2016

Nifty opened gap down today at 8671 followed by sharp decline and traded with negative bias for rest of the day. Nifty declined by more than 150 points to register day’s low 8541 before closing huge 135 points down at 8573.

Yesterday, trading strategy was to Buy Nifty in 8694-8681 range using exact stoploss of 8663 expecting targets 8781 but Nifty opened at 8671 and declined below 8663 within fraction after opening, so trade was negated. Nifty declined as per alternate possibility of the sharp decline (small crash) mentioned in the report. Let’s analyze fresh charts for further scenario.

Today I am covering move from 29 Feb 2016 low 6825 and previous waves counts are explained in my all time frames report Elliott Wave Counts of Nifty for All Time Frames as on 18 July 2016.

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This is daily time bar chart of Nifty covering move from 29 Feb low 6825. Nifty is rising from 6825 without even a 38% correction in between but with lots of overlapping which makes it difficult to identify inner waves confidently.

By casual look it seems an impulse completed from 6825-7992 which could be wave (A or 1), decline 7992-7678 may be wave (B or 2) and wave (C or 3) may be in progress from 7678. Wave (C or 3) already achieved 100% projection after breaking 8845 whereas next 123% is placed at 9120 which is exactly the all time high.

Within Inner wave (C or 3), it seems inner wave (iii) of (3) is completed at 8728 but I am leaving the later wave counts as I am not able to figure out anything confidently. There are number of possibilities for different conditions which are difficult to explain practically. So, I am leaving waves counts and for this move and looking at the structure only.

But structure of decline from 8968 doesn’t looks like a downward impulse at this moment, nifty needs to crash severely to gain the personality of impulse because there is lots of overlapping. Otherwise this decline is carrying the personality of corrective wave and possibility of a bounce above 8968 in coming weeks or months cannot be ruled out. The same I have explained in next chart.

So, let’s have a separate look at decline from 8968 on 30 minutes chart.

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This is 30 minutes time bar chart of Nifty covering decline from 8968. Again I am not making any wave counts on this chart but just showing the structure of move and Fibonacci Calculation.

There is overlapping of waves within this decline which generally indicating it as some type of Corrective pattern, may be complex correction pattern. But if this decline has to becomes impulse then it needs to be a big impulse because the whole decline till now will be wave (1), (2) followed by inner wave (i) and (ii) of (3). And if inner wave (i) of (3) is of 240 points then whole wave (3) may be of 600-800 points. Or this pattern also may be Leading Diagonal Triangle. There are no. of possibilities.

So, if the pattern of decline from 8968 is actually corrective then Nifty have to register one more high above 8968 sooner or later. Otherwise Nifty needs to decline without any break to keep the personality of downward impulse, any consolidation may confirm this decline as corrective.

Fibonacci Calculation wise, 61%-100% projection of whole decline from 8968-8555 is placed at 8550-8393 when calculated from last high 8806. This Fibonacci projection is for wave (5) in case of Leading Diagonal and last and 3rd (abc) cycle in case of Complex Correction (Triple Zigzag). So, 8550-8393 is the expected range of reversal if reversal has to happen.

Possibility of Good Sharp Decline or Crash:  Same as I explained above, Nifty can decline sharply or crash only if the decline from 8968-8555 is actually (1), (2) and inner wave (i) and (ii) of (3). But this possibility is very rare because inner wave (i) of (3) bigger than wave (1) is rare case.

Let’s analyze the decline from last high 8806 to calculate further levels:

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This is 5 minute time bar chart of Nifty covering bounce after 30 Sep 2016 low 8555.

The decline from 8806-8731 may be wave (1 or A), bounce from 8731-8781 may be wave (2 or B) and wave (3 or C) may be in progress from 8781. And within wave (C or 3), inner wave (iii) may be completed at 8541 and (iv) or (v) may be in progress. I am showing the possibility of (ABC) also because there is also a possibility of complex correction for whole decline started from 8968.

38% retracement of wave (iii) of (3) is placed at 8618 which is the point above which we can think of any reversal and same must be the stoploss for longs. Whereas, there is a possibility of one more decline of 78-120 points for wave (v). Projection for wave (v) is placed at 8504-8455 if calculated from 8582.

Conclusion:

Nifty declined by more than 160 points yesterday and also broke previous low 8555 but pattern of the whole decline from yearly high 8968 still looks corrective because of overlapping of waves. Otherwise Nifty need decline sharply with speed without any break to keep the personality of downward impulse.

Most of the conditions are favoring a bounce till 8700-8800 range or may be above 8968 from 8550-8393 and one rare condition is indicating a sharp continuous decline towards 8200 and below.

And for very short term, the point above which we can think of reversal is 8616 and there is possibility of one more decline of 78-120 for wave (5).

For Trading Point of View:

Most of the conditions are favoring the possibilities for a bounce towards 8700-8800 from 8550-8393 range and a rare possibility is also indicating a sharp continuous decline. And I personally like to go with normal possibilities rather than rare possibility.

So, personally I would like to buy “Nifty Nov 8900 Call Option” positionally in second half before closing today if get Nifty trading below 8550 without any stoploss and hold for further updates. And I would invest only 5% of my trading capital for this trade because this Nov 8900 call also has possibility to be zero if Nifty decline sharply.

For Selling, stoploss must be 4-5 points above 8616 for expectation of 78-120 points decline.

Question from Client, Why Elliott Wave Theory fails to give Sell Calls for Thursday’s decline of 160 points? 

Definitely I failed to trade this decline of 160 points but it was totally my (analyst) failure not of Elliott Wave Theory (Analysis Method). There is always a right pattern going on the chart, EWT is doing its things perfectly, it is the analysts who failed.

And Elliott Wave Theory Indicated this decline as I explained in yesterday’s report that: –

“But if the same decline is waves (1), (2) followed by  inner waves (i) and (ii) of (3) then we can see a very sharp decline (like a small crash) because if inner wave (i) of (3) is 115 points then whole wave (3) can be more than 300 points. Although this possibility is very rare and Nifty needs to crash without any delay otherwise any consolidation above 8664 will negate this possibility”.

And you look at yesterday’s decline then the same thing happens, Nifty declined sharply like a small crash without any delay. Nifty acted exactly I mentioned in this paragraph but the only thing is that I didn’t suggested any trading strategy for that. If I could have just added in the trading strategy that “Breaking below 8633 has possibility of crash” then yesterday report could be best report because most of clients read only “Trading Strategy” part and not bother about explanation. So, this was my failure not of EWT, EWT has indicated it.

Reason for not giving Trading Strategy for Sell: –

Though I have mentioned the possibility but also mentioned that possibility is rare because inner wave (i) of (3) in this case was bigger than (1) which is rare case. On the other hand, the whole decline from 8968-8555 was still looking corrective.

So my experience says that, we must go with normal possibilities rather than with rare possibilities because a rare possibility doesn’t happen every day. Rare possibilities happens 20%-30% of the time and if we go with rare possibilities then we may end with loss in 70%-80% of the cases.

But again, rare possibilities do happens and we cannot control it. This rare possibility is only the factor which stops us to get 100% accuracy. Though we avoid going with rare possibility but we must have protection plan against these rare possibilities to avoid loss in case it happens and that is what I always do and teach.

Possibility of crash was suggesting that crash will be sharper if it has to happen so I suggested trading strategy, “Buy in 8694-8681 range with exact stoploss of 8663” because most probably we may not get chance to buy if crash has to happen and same happen yesterday. We were protected against rare possibility, we didn’t sell but we didn’t lose, and even if lose then just by maximum 25 points.

I mostly advise buying both Calls and Puts in these conditions and we succeeds with good profit most of the time but here I could not suggest the same because this week was full of holidays and premium declined drastically during holidays.

Success in trading only comes if we lose very less when we are wrong and gain relatively huge when we are right, there is no other way. We can’t be accurate every time, we may have 10 wrong trades in a row some times and trading strategy must be such that the loss of those 10 wrong trades must be covered in 2-3 right trades. And that is what I do, if you check any of my analysis report then you will find that you can never lose if even when I go wrong in analysis if you follow the strategy/stoploss strictly. Loss is very limited when I am wrong and gains are relatively huge when I am right.

Same things I have decided today to go with normal possibility of bounce above 8700-8800 and buying Nov 8900 calls with 5% capital. Because even if we go wrong and even if Nifty crash by 1000-2000 points, my loss is limited to maximum 5% only, even this Call will not become zero before expiry. I bought the call because stoploss is very big for buying and it is very risky to hold Futures overnight. I am aware of the possibility of crash but going with normal conditions with protection.

My reports and services are not go give you trading call. There are 1000s of Tips providers if you needs only trading calls. Aim of my services is to make best self sufficient traders who will survive in any market conditions. Failure in analysis, wrong trades happens and we will also miss many great profit opportunities, there is no control over it, May be our mind can be disturbed and go freaky sometimes to take wrong decisions as we are human but there must be a protection that we will not lose even if we go wrong.

At last, It was my failure to sell Nifty other Elliott Wave Theory has already indicated it.

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Category: Nifty

About the Author ()

Deepak Kumar is an independent Technical Analyst, regular practitioner and Trainer of Elliott wave theory applying Elliott's Wave Principles on Indian Markets successfully since 2011 and made many accurate predictions. He is also the author of book "Practical Application of Elliott's Wave Principles by Deepak Kumar"