In mid-April the Indian benchmark stock market index Nifty 50 was trading near 10 550 after a recovery from a two-month plunge between 11 172 and 9952. Despite the recent pullback, the daily price chart suggested the uptrend was still in progress and the bulls should eventually be able to reach a new all-time high between 11 200 and 12 000. The Elliott Wave analysis, which led us to that conclusion is shown below.
The logic behind our bullishness was that in order for a trend to progress, a five-wave pattern called an impulse has to develop. Since Nifty 50’s drop from 11 171 found support precisely at the 38.2% Fibonacci level, it made sense to label this decline as wave (4) of a larger impulsive sequence, whose wave (5) was still missing. If this count was correct, the Nifty 50 was supposed to reach a new record soon.
But it did not. 10 929 was the best the bulls were capable of. Does this mean the above-shown analysis is no longer valid? Is it time for the bulls to abandon ship or maybe 11 200 is still there for the taking? Let’s take a deeper look and examine the 30-minute chart below to find out.
The 30-minute chart provides an insight into the stricture of wave (4) as well as the following rally to 10 929. Wave (4) looks like a textbook simple A-B-C zigzag with an ending diagonal in wave C. What is even more interesting is the fact that the surge to slightly over 10 900 could easily be seen as a five-wave impulse, labeled i-ii-iii-iv-v in wave 1 of (5). This means that the most recent weakness to 10 418 so far should be wave “a” of a smaller a-b-c zigzag correction in wave 2 of (5).
If this count is correct, the bears might be able to drag the Nifty 50 to the 61.8% Fibonacci support near 10 300, but as long as the starting point of the impulsive pattern at 9952 is intact, the bulls’ hopes remain alive. In conclusion, wave (5) is not moving in a straight line and it is not supposed to. The positive outlook, however, is still valid and the Indian benchmark is still on track for a new all-time high in the months ahead.