22 Jan 2021 ● 12:15 PM
Position Sizing model - Long % = percentage of indicators bullish v/s Short % = number of indicators bearish, Including both daily and weekly time frames.
Nifty may bottom out with one last push toward 14300 on Monday and resume the uptrend. Unless we break the 14290 level on a closing basis maintain a bullish bias.
Now a little technical.
The last 2 days' decline in the nifty has managed to camouflage itself from impulsive to corrective and back to impulsive again by the end of the day. What this does to the wave structure is shifting it from a triangle and a possible flat as shown on the chart. A flat is a 3-3-5 pattern that we mark as a-b-c and once complete should result in a trend continuation. There is a possibility that nifty may drop a little more towards the 20 DMA near 14,300 before turning up as minor wave v of c completes its decline on the hourly chart. Once we get support near 14,300 on a closing basis we should start up in wave v of iii back towards the upper channel line near 15,100. I will consider an alternate scenario only after all the indices break below their 20-day average. I am giving more weightage to the average because momentum indicators have whipsawed repeatedly, but the 20 DMA has held a couple of times just like it did in the 3rd wave between June and August.
As nifty consolidates a slight the upward rising channel has its lower end near 14,295 along with the rising channel from the December bottom. This should be the ideal support for a regular flat from where we may again attempt to go back to the top end of the channel at 14,790 and attempt to break out of it on the upside.
I am again displaying two swing indicators based on the same data on top of nifty. The 1st 1 runs on the 9-day exponential moving average of the momentum of all the 142 F&O stocks. The 2nd 1 runs on the momentum indicator itself for all the stocks, and therefore the second one has more gyrations ideal for short-term points. What I'm trying to show here is that when both the indicators get oversold together at the lower end of the range then more important bottoms get made, I have circled the arrows at these points for reference. Only one of the bottoms was the interim low in September from where you got only a retracement in a corrective bounce, the others marked impulsive rallies to new highs. The smoothed swing ended at 13 today and any further decline would take it to single digits by Monday. The only time this would not work is if we are in an outright bear market.
First in English - bank nifty may dip to 30778 worst-case and complete the correction that is mostly over today, and then we start the next move to beyond 33000 from there.
Now in EW language
The main culprit today might have been bank nifty as on many charts it is possible to mark 5 waves, just like we have been doing on the weekly chart of bank nifty as well. However, drilling down from the daily to the hourly charts, I feel that this may still be the better wave count where only the 1st wave of wave 3 ended in December [not wave 3 itself]. The reason is that the decline in Dec was very small in either price or time relative to the 2nd wave that ended in September. Thus the 3rd wave may only be subdividing in which case the most recent rally in January ended wave I of 3 and we are now dipping in II of 3 down which has probably developed as an expanded flat as discussed on the hourly chart during the day. While the target for wave c at 161.8% of wave a has been achieved, a slight dip to take support at the 40 day average near 30,778 may occur on Monday before wave C completes and we start wave III of 3 up.