Let’s take a look at India’s Nifty Index both on a Weekly and Daily view and look at an alternate Elliott Wave count and vital support and resistance numbers.

$CNXN Nifty Weekly:

I’m going to use this post to explore some possibilities instead of giving an opinion on the likely direction due to the price consolidation.

The Nifty peaked on a negative momentum divergence just as 2008 began which was a few months after the US S&P 500 peaked in October.  Price then fell into the March lows forming the First Wave down as the Second Wave took price in line with the S&P 500 to peak just as May 2008 arrived.

At this point, the Elliott Wave count becomes open to interpretation, and I’ve labeled the two dominant interpretations here.  The most ‘bullish’ count - which I believe is the primary count until proven otherwise - is that the 3rd Wave ended at the October lows and the 4th wave is either a triangle (see daily chart) or ended just as 2009 began and that we are currently in the major 5th (circled) wave down with the expectation to make new lows or truncate (test) the Wave 3 low at 2,250.

Keep in mind the Nifty is showing relative strength to the S&P 500 as the Nifty has not broken its October/November lows.  The new momentum low (and new price low) in October hint that the actual price low is yet to come, and that it will - if it occurs - form on a positive momentum divergence.

The alternate count is far more ominous and bearish, which states that we are currently STILL in the major (circled) Wave 3 down and that we are in (or are missing) a Wave (5) down to complete the major (circled) Wave 3.  This count is shown with the blue “alt (1)” labels overlaid on the chart.

The same count and interpretation is open to the S&P 500 as well.

$CNXN Nifty Daily:

Again, on the Daily Chart, I’m showing more the theoretical and am exploring possibilities as to the alternate wave count.

This count has us fractalizing a major (circled) 4th Wave and showing an Elliott 5-wave triangle that took place during the recent price consolidation.  The implication is that we are in the (5)th wave currently and are expected perhaps to test the November lows.

What’s interesting is the major level of support at the 2,600 index level and the resistance at the 3,200 level.  Price has roughly traded within a 600 point range for the prior four months.  We certainly needed a consolidation period to digest the rapid down move into October, but price has built a base or value area around the 2,800 zone.

It’s really difficult to make any sort of prediction or assessment until price breaks above 3,200 or below 2,600.  It would seem to indicate that odds favor a downside break, but the downside break is by no means guaranteed.  In fact, because that is perhaps the widespread assumption, price could trick (trap) the majority by forcing an upside breakout.

The easiest way to look at the current structure - Elliott Wave aside - is to note that the Nifty is in a consolidation range and to consider playing the break for a possible range-expansion move once a breakout occurs in either direction.

Until we get that range break, trading could be difficult in such choppy conditions.

Corey Rosenbloom
Afraid to Trade.com

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