The Nifty closed at 4464 on August 31, losing 64.85 points or 1.43% last month. The long lower shadow indicates that the lower side volatility was high i.e. attempt was made to push the index down but the bulls managed to close it near the open.
This month, the Nifty gained 557.35 points or 12.49%. In the last 12 years, the monthly gain for nifty over 12% has been achieved on 8 occasions, the last one being December 2003. Incidentally, a correction begain in January 2004 and in May 2004 Nifty lost 17.40%. In the monthly chart of Nifty shown below, there is still no sign of any reversal.
Normally, in the absence of any reversal signs, we have to conclude that the current trend should continue. But how long the indices will keep going up without a correction? Last month, the Nifty touched a low of 4002; the weekly charts show that it closed positive for 6 weeks in a row.
In the weekly chart too, there are no reversal signs. We need a pattern formation to decisively suggest that the market has reversed.
For Elliot wave count, some guidelines need to be followed. Few are given below.
- Wave 2 may be any corrective pattern except a triangle.
- No part of Wave 2 can more than retrace Wave 1.
- Wave 2 must retrace Wave 1 by a minimum of 20%.
After the Wave 5 completion at 4648 on July 24, a corrective decline began and waves a, b and c are marked on the daily chart above. Wave ‘a’ had a loss of 381 points, ‘b’ had a gain of 263 points and ‘c’ had a loss of 528 points. This is perfectly normal; it adheres to Elliott wave theory. When the uptrend started at 4002, we anticipated that a corrective decline may occur after 4530 which did not happen. Instead, the index was facing a sideways movment. If we strictly follow the rules of Elliot wave theory, it can be seen that:
- Wave 2 actually made a higher high compared to wave 1 (it should not have)
- Wave 2 did not retrace wave 1 by a minimum of 20% (it should)
These two discrepancies now lead to a conclusion that wave 2 has failed. This means that the market may no longer follow the Elliott wave theory for the time being.
A failed wave indicates uncertainty in the market. A decline can occur anytime but it is difficult to predict.
The daily chart for Nifty futures contract - October series has been shown above. The open interest has significantly increased, from about 18466 contracts on September 14 to 31,744,900 on September 27. This is another reason to believe that markets are likely to face a corrective decline.
Forecast for next month:
Traders need to be cautious. A correction, usually sharp, can occur anytime and it is wise to avoid big positions, particularly in Futures & Options segment since there is lot of uncertainty. However, there will be some investment and trading opportunities, particularly for medium term. Investors can enter those stocks at support levels.
Record breaking month:
On September 27, the Nifty closed at 5001. It took only 29 sessions to reach this landmark from a low of 4002.
On September 19, Sensex went past 16000 and closed at 16323 with a huge upward gap. Again, on September 26, it touched a high of 17074. Next day it closed at 17151. It is to be noted here that Sensex took just 5 trading sessions to reach 17000, which is the LOWEST for any 1000 point milestone. For more on these milestones, please read my earlier article, “Sensex hits 16,000: The India Street Special Report”.
The minimum number of sessions ever to cross 1000 points was in April 2006 when it needed only 19. Now it is even less than that, just five. But after April 2006, a huge correction occurred and Sensex lost about 30.5% in about 5 weeks.
The top 5 gainers and losers for the month among index stocks are given below.
| Scrip | % Gain | Scrip | % Loss |
| REL | 54.67 | WIPRO | 4.58 |
| RPL | 32.58 | GLAXO | 4.27 |
| HDFC | 27.83 | HCLTECH | 1.39 |
| TATAPOWER | 24.76 | TCS | 0.39 |
| TATASTEEL | 23.31 | SATYAMCOMP | 0.35 |