19 September 2009

Nifty Wave Counts

Lets take a look at the Nifty wave counts as of week ending September 18th. I have taken the lows of previous correction as the start of the new 5 wave structure.

0 = 4353 ; 1 = 4744 ; 2 = 4577
3 = 5003 (possible end of wave 3, if rally continues without correction to a minimum of 4840 this scenario fails)

Taking a look at the chart we see that wave 1 is having a length of 391 points. Wave 2 is of 167 points a 43% retracement, satisfying the condition (between 38 to 78% of wave 1). Elliot principle states that Wave 3 cannot be shortest of impulsive waves and hence wave 3 should have a minimum length of 391 points in this case. Which is taken care as September 17 high of 5003 gives us wave 3 of 426 points.

Now considering wave 3 to end at 5003, (though it may not be the case and Nifty can rally higher without any meaningful correction) we expect corrective wave 4 to take Nifty to a range of 4840 to 4790, and in no case below 4745.
I am forced to believe that 5003 or some higher level very close to it should be the end of wave 3 as we can see strong profit booking near those levels 5000 being a psychological resistance. We see negative divergence in MACD and CMF (shown in chart). Another reason being no decent correction taking place to take the markets strongly higher (corrections are necessary for new people to get in).

Minimum wave 5 target (less bullish scenario):
We get the correction to 4790 or below the wave 5 length becomes 62% of wave 1 giving a maximum target of 5032 in Nifty. I assign this a low probability outcome, as this violates Elliot principles for the larger structure that I am following where a minimum target of 5165 is expected from this 5 wave structure.

Maximum wave 5 target (more bullish scenario):
We get a correction to 4840, and wave 5 length becomes 162% of wave 1 which is 633 points (not possible as in this case wave 3 will become shorter than wave 5). So wave 5 of maximum length of 425 points can be expected, which will take Nifty to 5265.

But what if we do not get a correction, lets discuss it when that happens!!


daddhu said...

very good article...i got a small idea

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