Today was a good day for the markets. All the negative news that was there in the markets failed to make the markets react negatively. Though, the CRR hike was already discounted into the prices, yet a slight negative reaction was expected on opening today. The market decided to take into account the positive global cues rather than the negative news. Not only did it open above 5000, it never went below 5000 throughout the day.
It was a good day for our analysis too. As recommended yesterday, Axis Bank, HDFC Bank and Reliance Petro went up while ITC came down. The only stock that did not go as per our expectations was Wipro which went up and then continued to lose money through the day. Sasken Communications and Tech Mahindra, recommended in earlier newsletters, did test our patience for sometime but are giving us good returns today. We just need to be confident of our analysis and not lose patience and the markets will surely reward us.
It was a good day for our analysis too. As recommended yesterday, Axis Bank, HDFC Bank and Reliance Petro went up while ITC came down. The only stock that did not go as per our expectations was Wipro which went up and then continued to lose money through the day. Sasken Communications and Tech Mahindra, recommended in earlier newsletters, did test our patience for sometime but are giving us good returns today. We just need to be confident of our analysis and not lose patience and the markets will surely reward us.
Today, the Nifty managed to break out of the range that it was moving within between 4500 and 5000. Not only that it also managed to cross the downward sloping trendline where it was finding resistance since the last 3 months. While the target for this range breakout remains 5500, yet there are a few areas of resistance in between. Two of them at 5115 and 5385 have been marked on the chart with the dashed brown lines. Another positive visible on the charts is that the Relative Strength Index (RSI) has also crossed through its downward sloping trendline, which has been in place for almost 7 months now. There is only one thing that may be worrying and that is that the RSI still hasn’t crossed 60. A move above 60 is a sign of bullishness and RSI below 40 is a bearish sign. Hopefully, if we have another good day in the Nifty tomorrow then this hurdle also should be crossed.Elliott Wave Theory (EWT) was formulated by Mr. RN Elliott who said that stock prices, though the movements seem irregular, follow a certain pattern and in all time frames. He said that stock prices move in waves. There are two kinds of waves – the impulse waves (a set of 5 waves – 3 in the direction of the trend and 2 against) and the corrective waves (a set of 3 waves – 2 against the direction of the main trend and 1 in the same direction). There are a number of rules given for the recognition of the waves. It is not possible to discuss all the rules here (it would actually need a number of books to list and explain all the rules) but I will discuss a few basic ones.
In the first set of five waves, the impulse waves are numbered as 1, 3 and 5 in the direction of the trend and waves 2 and 4 are corrective waves against the trend. Waves 1, 3 and 5 are of the same length but one of them may be an extended wave. Wave 3 is usually the longest but never the shortest. Wave 4 does not come into the price territory of wave 1. There are a lot of other rules and even I can’t recall all of them off hand.
Applying these rules to our daily chart of Nifty, and assuming that our numbering is correct, then the target for wave 3 is between 5175 and 5180. But wave 3 is usually the longest wave but never the shortest. If it is the same size as wave 1 then we get a target of 5131. and if this is the longest, which means if wave 3 is an extended wave then it should be about 1.618 times the length of wave 1, whose length is 502.25 points. This means that wave 3 should be 812.64 points long and from the end of wave 2 that gives us a target of 5441. While we do not know where the Nifty will go but we should just be careful around these levels. 
Balrampur Chini has made a double bottom pattern, which is also known as a ‘W’pattern (because it looks like a W) and has gone through its neckline. Not only the price, even the RSI has made a double bottom pattern. This gives a target of 130 for this sugar stock. A stop loss of 90 should be safe. 
Bharat Electronics (BEL) has made a higher bottom and has now crossed its most recent previous high, which seems to suggest that the downward trend is over in this stock. While no clear pattern is visible, as such, which could give us a target but with a stop loss of 1120, a target of 1475 is possible, with a slight resistance around 1310. 1475 is a Fibonacci Ratio of 38.2% and we’ll talk more about that in the weekend newsletter. 
Bharti Airtel has broken through its downtrending line and should now move northwards. With a stop loss of 775, a target of 990 cannot be ruled out. Again the only worrying fact is that the RSI is still below 60 and that today’s breakout was not confirmed by a spurt in volumes. 
I-Flex Solutions has broken through its downtrending line and this breakout, unlike Airtel, is accompanied with volumes. Though, RSI now is too high and may require some cooling off before we enter the stock. Consider buying below 1250 with a stop loss of 1120 for a target of 1750.Happy investing!!!
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