17 September 2012: Nifty Elliott wave analysis: It will be third gap up in nine days. This kind of gap up is too dangerous even for bulls. “The boosted reforms” by Dr. ManMohan Singh will push stock price higher. RBI monetary policy review and Political development will be more important today after opening.

You must read previous articles and watch above chart carefully to understand this article completely.

Today’s outlook: -

Stock market has waited for many years for reforms and it came on Friday evening in much unexpected ways. Dr. Manmohan Singh has taken a bigger risk of ‘political instability’ in a coalition politics. No matter how big ‘oppositions’ and ‘coalition partners’ are opposing but until they really brings ‘no confidence motion’, this government will have no threat. Every move was calculated. Opposition of FDI and Diesel price hikes are just looking as political drama. Till yesterday, people were presenting themselves as they are going to withdraw support but suddenly all are changing their words. These are politics of opportunity and no one can predict them.

On technical charts are we are going to see third 60-70 points of gap up. With today’s gap up, it will be full 270-280 points of gap out of 400 points of rise. This is too much to say about any single degree of safety. I can say that those policies related decision will not change economy related data so soon. We are still living on the big threat of higher inflation. Those decisions will take 6-8 months of time to show its effects. This kind of rise can end up with ‘blow up top’. I can tell you that ‘blow up top’ come with extreme optimism. We may have RBI credit policy review today. It seems that some positive would be factored it with optimistic rise.

So, after another gap up, no deal to trade long. If you want to trade long then maintain some suitable stoploss to maintain risk/reward ratio. I am expecting a test of 5640. Let us see if it crosses.

Wave development: -

On 30 August - Firstly, I have quoted for resistance at 5449-5450. I have already said that this is ‘most unreliable’ rise. You can ask for reason. Just a fair question, what was the base of this rise? Just hope and blind hope. Now we in the final count down of hopes for Indian, European and American market. I have said this in past and repeating again that policy makers are playing with the fire of stock market. They are just buying time from stock market. They will not act on their words.

Earlier in the week - Elliott waves are turning very critical now. You can able to see that now every single wave is contracting in nature. First rising wave started form 4531 has a life for 1100 points, and then next rising wave started from 4770 and has a life for 580 points. Next rising wave started from 5032 and has a life for 418 points only.

Earlier in the month - I like to add few more things for “reverse H&S”. Length of head = 5279 – 5032 = 247 points. Confirmation point will be one-third of head length i.e. 247/3 = (~) 83. It means 5279 + 83 = 5361. So we need to see the one-third confirmation rule to bet for 5526. As it is visible on daily chart so we need to see this close to close basis. (This is a “must know” concept).

Nifty has a low at 5032 on 27^th July 2012. As of now we can sense that there is a beginning of new wave which probably is going to be a rising wave. Take a note that we have seen a completion of up wave which has started from 4770. It is named as 1-2-3-4-5-a-b-c in above chart. On 3^rd August 2012, we got a low of 5164.65 which is exactly 38.20% against the rise from 5032 to 5246.

This is encouraging with few challenges on higher side. Every wave trend has some relation with its previous wave or waves in terms of ratio. I myself have said that this is going to be most unreliable rise looking the reason of rise but when I have to work with charts then I am forced to keep those away. I can tell you that charts are still saying that I am not wrong in a big way. Magnitude of upcoming wave will be lesser compared to past few waves.

Charts are saying that if we manage to close above 5279 then we can conclude for the formation of ‘reverse head and shoulder’ pattern. It will have n line @ 5279. You can say for the rise which should be equal to 5279 – 5232 = 247 points. It can give me a target of 5526. Well, it is looking easy but it will not be easy. We can say,

Beginning point of wave = 5032.40

Wave 1 = 5246.35

Wave 2 = 0.318 times of wave 1 = 0.318 times of (5246.35-5032.40) = 5164.65

Those who are bullish in their nature should keep their fingers cross for 5279+.