The Nifty has moved sharply lower over the past two sessions and the Bank Nifty has been showing classical negative divergence with the Nifty.
On July 16, the Nifty closed above 15,920 but many long positions will now be trapped due to the sudden reversal without any news or events. The index moved swiftly from the upper end of the range to the lower and is on verge of breaking down.
Nifty hourly chart: Neo wave pattern
Nifty Open Interest chart:
The Nifty Open Interest (OI) analysis chart also indicates huge Call OI addition near 15,700 and along with that, put additions near 15,500 levels. So, the range which was earlier 15,640–15,920 will shift to 15,700– 15,500.
The Neo wave confirms that the overall trend has reversed when we see faster retracement below the last rising segment. The earlier rise was from 15,630 to the high of 15,962, which was in the form of wave g, and the same retraced completely in two days. So, the five days of rise retraced in two days, which provides two stages of confirmation that wave g is over and the reversal, at least over the short term, has started.
A decisive close above 15,750-15,800 will indicate an alternate scenario of entire sideways action as wave b and wave c are pending on upside but given the time consumed, sentiments, pattern and global selloff, there is a high probability that a meaningful top is in place.
The above charts only show how by using these simple methods one can derive the trades right from intraday to positional time-frame with a clear strategy rather than relying on news or events to take a decision. Remember, there is no certainty in this game of probability and one has to ensure to have alternate scenarios ready.
In a nutshell, Indian equity markets look to be at a crucial juncture and a break below the low of 15,570 might accelerate the selling pressure, which can reverse the medium-term trend to the downside.
Any push back above 15,750–15,800 might result in sideways action again without any meaningful trend.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.