What do the Elliot waves say?

Last week, we focused on RSI as a Buy or Sell signal. This week, let us look at what the Elliot waves say.

Elliot helps in taking a longer term view of the markets.

The chart is of the entire up move started from Covid low bottom of 

Wave 1 7552 - 18604= 11052 points. This took approx 19 months)

Wave 2 18604- 15191= 3413 points (31 pc correction) approx 8 months

Wave 3 15191 and ongoing since July 2022.

Wave 3 targets could be 26243, 29249 or 31760

Elliot does not put too much focus on the time lines but on price.

Implications for the longer term:

Once Wave 3 gets over at approx 29k then entire up move from 15k to 29 k will corrected. This can easily take 12 to 18 months. Post this 1 more rally of 10 12 K points and then a multi year correction.

Let us re visit this hypothesis end of May when the wave 3 will be closer to maturity.

The importance of RSI as a Buy Sell Signal

 The markets give us multiple opportunities to buy and sell. How do we know when to buy and when to sell? Let us explore that.

There is a simple technical indicator available called RSI. Readings over 70 means markets or stocks are overbought and readings below 30 are an indication of markets or stocks being oversold and a time to buy.

Let us look at a couple of charts of Nifty on daily and weekly basis to illustrate this.

On the daily timeframe in the last 3 years, there have been at least 5 sell opportunities and 3 buy opportunities.

Let us look at the weekly chart below:

 

Here also, in last 10 years, at least 4 Sell and 3 buy opportunities have come. In Weekly RSI, these are opportunities for a bigger rally and the current opportunity is a similar one.

You can explore further using the below link:

https://stockcharts.com/sc3/ui/?s=%24NIFTY

Bottomline:

RSI is a very simple and powerful technical indicator to identify Buy and Sell opportunities. This is independent of the fundamentals and purely on Technicals.