Nifty : Rising to Fall ?

After today's rally in Nifty which came out of nowhere; all my correction expectations were thrashed. But after looking at today's chart some hopes were rekindled. I am posting 2 charts today just to see how closely each rally is related to another.

      

The first chart (click to enlarge) talks about the rally we saw in July. I have marked the rally as a 5 wave structure in black. 3 waves up and 2 down and after that the correction in red. What we can learn is that the 1st wave is a very strong one and gives the MACD a big push, so that the divergences reaches a new positive high. We have a correction and another leg up, this time the divergences are lower than the previous. Again there is a correction and then we have the final leg up which is associated with even lower divergences. For all the 3 waves up, the Rate of Change which measures how quickly the stock is moving also decays.

So what we get after a 3 wave up is a nice setup for a 3 push reversal. The correction that follows is atleast 38% of length of the total move up and it can go till 78% depending on how bullish or bearish the set up is.

Now take a look at the second chart. This is the current development in the Nifty. What we see after few days of consolidation and today's rally is that we have a setup where the third and final upside is pending and if it happens with a even lower divergences and ROC, we can say that we are almost at the verge of another significant correction.

If we get few days of rally (ideally not more than 2-3 days) with not much volumes and looking very tentative and somehow manages to touch 5000, be ready for a correction in the range of 250 - 300 points. Remember counter trend moves are pretty fast and furious and should occur in 3 waves.