“Pre Budget volatility” :: HDFC Securities

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Observations:  Week’s action formed an inside candle which is bullish reversal sign - any rise above 7227 would lead to positive bias in the market. However after any sharp decline generally index retraces 50% of the fall. A week back index fell sharply from 7513 to 6869, so the expected 50% upward retracement (to 7190) has been witnessed.  Last week we had indicated that on daily chart index has formed a bullish reversal candle; so sell on rise scenario has arrived. The same has happened, now the question is from where index could reverse? Mostly from current level or from 61.8% retracement level this is placed around 7265.  We are ahead of major financial event “Union Budget” so volatility would be higher in the market; so don’t short immediately or at 7265, turn negative only when index moves below previous day’s low as of now the level is 7145 i.e. Friday’s low.  Last week index has provided a clear breakdown of channel setup and now again it is revisiting inside the channel, however it may not breach the 2-4 trendline (see page no 3). The bearish evidences are still visible: index is trading below 21 day EMA, the rise from 6869 from current levels is not an impulse and index is in retracement rise before the next falling leg.  The 61.8% and 80% retracement levels of last week’s fall are placed around 7265 and 7380 respectively. Why we are mentioning about 80% retracement level? Because our final reversal level is 7400 which we mentioned in last week’s report.  People who know Elliott wave theory may have a doubt that “wave 1& 4” should not overlap in an impulse; so index should not move above 7350 (bottom of “wave 1”) but we are keeping our reversal level at 7400. The answer is index is in “wave 5 of iii”, overlaps are allowed in the internals of “wave i & v”. Apart from this, in the retracement rise so far index took 5 days of rise which is Fibonacci number. In case index does not show any reversal at close on Monday then it could rise till Wednesday which is 8th day and index could start falling from derivative expiry day i.e. Thursday.  Overall after this internal rising leg (mostly it may turn from CMP to 7300) index could start sliding down towards or below 6869 levels (in wave v of wave iii). Major down side target would be 6500/6550 which is 61.8% retracement level of major rise started from 5118 to 9119 (either in wave 5 of wave iii or in major wave v – after a uptrending major wave iv). This bearish view will cancel out if index moves above 7400 mark. Any bounce back or pre budget rally could halt below 7400. It is likely that we may not even move above 7265 and 7380 levels. Any pre Budget bubble may burst later.  As per our preferred wave count: Index has completed a five wave decline from the high of 9119 to 7940 which is marked as major “wave i” as a “Leading Diagonal”. The three wave upward rise from 7940 to 8655/8531 is marked as major “wave ii” (For internals refer Weekly technical Report dated on 22 Aug 2015 or earlier reports). And now progressing falling leg is major “wave iii”, it has started from either 8655. In which minor “wave i” has started from 8655 to 7539 and the rise from 7539 to 8336 is marked as “wave ii” now we are in the subdivisions of minor “wave iii”.Cycle degree wave count is as follows: The high of 9119 is some larger degree wave end. As per our preferred count Cycle degree “wave iii/C” has ended at 238.2% projection level of “wave i/A & wave ii/B”. The cycle degree “wave i/A” started from 4531 level and ended at 6229 and “wave ii/B” started from 6229 and ended at 5118. The dynamic “wave iii/C” started from 5118 and ended at 9119 with a couple of extensions. And now index is in progress of cycle degree “wave iv/X” down. We have marked 9119 as cycle degree top in Mar 2015 when index was around 8850.

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