I bring you an analysis of Nifty 50 using Eliott waves and found the price to be respecting the waves theory from 1996 till today.
Here's my approach, observations, and some prediction mentioned below for you. Like and comment on what do you think about it.
You can zoom out in the chart to see the wave pattern formation across time.
1. Decide a timeframe for validating if the index is respecting Eliott waves theory - Used for this
2. Decide a time frame to predict where the price move will happen in the near future based on the behavior of recent corrective wave caused by corona - Used daily time frame for this
1. The index respects Eliott wave very well as demonstrated by the Fibonacci levels of the motive and corrective wave. (I cannot put multiple Fibonacci on one chart on top of another so that's one exercise which you can do yourself)
2. The coronavirus marked the end of the second motive wave which pushed nifty prices up from the bottom of the housing bubble in 2008.
3. The correction wave by corona (wave A) was impulsive in nature making prices fall to a bottom of 7.6K
4. Wave A saw retracement by Wave B (50% Fibonacci level of Wave A - is at 9854) taking prices high to the current level which is 9580.
The story gets interesting now.
Is wave B going to get over at 9800 level and Nifty 50 will fall from there again??
How far up the prices can go by wave B of NIFTY 50 before it will get weak again and will be taken over by wave C?
Wave C can make the price fall again till what level? Can nifty go below 7500?
Note: This is completely based on my analysis and understanding of . I will not advise you to trade according to my analysis results.
a. Wave B is not over yet. The price will increase to a minimum of 9854.1 (50% of Wave A by wave B) or a maximum of 10407 (38% of wave A by wave B).
b. Given the impulsive correction of wave 5 by the corona induced wave A, a or complex recovery is expected.
c. Another fall will follow the high of wave B, which will bring the prices below the previous low of 7.5K
d. The fall can be as low as 6041 (1.6 Fibonacci level) of Wave A caused by corona.
My trade setup -
Right now, I will go long till 9854 level/10407 level. If 9854 level is crossed and stock moves high towards 10407 level then I will put a stop loss at 9854 level. At 10407, I will exit the trade and wait for other SR levels to decide my next position.
Thanks for reading it till here. Hope you liked the analysis.
Do let me know what do you think about Nifty 50 prices in the coming months in the comments below.
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Also the price faced strong resistance from 50 periods EMA on the monthly timeframe. If the price manages to break the resistance of 50 period EMA then the analysis will fail and I will advice you to not rely on it anymore.
According to me, before the coronavirus induced price fall, Nifty 50 was in the extended fifth wave (of high demand and less supply). After the extended fifth wave is over and a new wave starts it essentially depends on the wave that followed 5th wave to decide the structure of forming wave sequence. Since Elliott wave is essentially demand and supply wave and it maps price change due to variations in demand-supply which is further influenced by several other factors.
I have used my understanding of the possible factors which might impact the demand and supply to map the possible waveform in which the price can move. In this process, using the waveforms and the guidelines of Elliott waves I tried to obtain the price targets.
Following are the reasons for my motivation behind taking a bearish view (of 6 months - 1 year) and drawing an ABC zig zag wave structure of the price movement in this period:
1. Technical reason - The big steep fall in prices due to coronavirus pandemic is my higher degree wave A(as you can see in the analysis). A steep fall should have a sharp price bounce back (wave B which got over last thursday? ) and a zig zag correction. This means a wave C which will push the prices even below the lows of wave A.
If somehow wave B is not over and price reaches 12K old price level then we will have flat correction.
My understanding suggests a zig-zag correction in prices which means there will be another big price fall (Wave C)
2. Other reason - Getting the medicine of any viral disease is not easy. We are still finding the cure of common cold and AIDS. Without medicine market's hope will turn into sorrow ultimately.
3. Other reason - Geo political factors like US elections, the conflict between Russia and other oil economies, US China trade war, India China tension will add fuel to the fire
4. Other reason - In a country like India (with a variety of pockets like Maharastra, Bihar etc), it will take us atleast 3 months from today for the coronavirus case to reach its peak and from their 1-2 months for the cases to decline. Sooner or later Indian market will face the burn. When families will start losing their family members people will hold onto cash rather than investing in the market.
5. Economic reason - bad earnings will be reported by companies, decrease in CPI, increase in unemployment, shortage of labor etc.
Whatever 12345 waves you are able to identify are essentially sub waves inside the bigger ABC wave in which the upcoming demand and supply will move.
I have my bias and I can very well be wrong which will be great as it will be a new good learning for me.
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