January 23, 2017

Neowave outlook of markets

By conventional Technical Analysis, however, “Island” area usually proves a significant resistance for the future market action. As we argued last week, “no further upsides can open until the ‘Island’ is taken over”.

An “Island” gets created when Index jumps with a gap-up and after some time, drops with a gap-down, matching that gap-up area. It is a rare but significant chart development. Index respected the “Island”, and failure to cover it finally resulted in a net loss last week.

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Over last week, Index dropped 413 pts from Wednesday’s high to Friday’s low. This “larger” fall came after the “smaller” rally. Thus, Index now shows the first set of “smaller” rallying segment and “bigger” falling segment.

As per VP’s structural rules, this is a sign of maturity of the rally. Accordingly, we suspect the rally, or at least its first part ( “a” leg) is now over, and corrective part (“b” leg) has opened downwards from the top of the CAB candle at 27460 (Nifty 8461).

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Our larger concern was whether the current “pre-Budget” rally will be able to take Index beyond the 61.8%-mark by the Budget Day or hesitate before that. Index has indeed hesitated somewhat. However, holding 200-day EMA could keep +ve hopes alive before the Budget.

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As per NEoWave, remember, an “x-wave” should end below 61.8% retracement level to the 1st Corrective, and if it does end below it, then 2nd Corrective can open downwards. So, we continue to watch the 61.8%-mark as a crucial upside ahead of Budget and State Elections.

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