Tuesday, December 21, 2010

Bullish view on Nifty and The Banking Sector!

Nifty 15 mins

We have been mentioning the importance of 5950 levels since past few days now. Nifty action in last 2 days again proved the importance of this level. On December 16th Nifty made a high of 5956 and closed the shorter trading week at 5942. Nifty broke out of downward corrective channel (shown in red) in second half of last trading day of the week and moved up impulsively.

On very short term basis we do not rule out the pull back till 5920 – 5925 levels before Nifty finally break above 5950 impulsively. We think Nifty is now in a (i)-(ii), i-ii mode and should now show a 3rd wave rally up which will be very steep. We might be early in making such markings before price confirmation but the 3rd wave rally will not give us the opportunity to show it before it happens and it will take not more than couple of days for steep rally. The rally in last 2 days in stocks like Infosys, TCS, Tatamotors, etc is perfect example of how 3rd wave rally works. We would rather be early than to miss the best of the rally that looks probable now.

We remain strongly bullish on Nifty now as long as 5850 level is intact. Any move below this level will make us negative since the entire move up will then be only 3 wave but this looks to be low probable scenario as of now. A move above 6000 will strongly confirm our bullish view on Nifty.

Bank Nifty

Bank Nifty 60 mins

The Banking sector has been falling for quite sometime. We thought of revisiting this index and the vital Banking stocks to understand the overall trend of this interest sensitive sector. We have analyzed the Bank index and key stocks like SBI, ICICI, PNB and IDBI banks to understand if we are in for further fall or we can expect an impulsive move up with very appealing Risk Reward ratio.

Looking at the long term Daily chart above, we can see that we have probably completed wave (iv) of 3 with strong support of the lower trendline of blue channel. This makes the case that the multi-weeks correction shall be over in this sector for now. Also we can see alternative guideline as mentioned in Elliott wave principle. The 2nd wave and 4th wave correction alternates between Flat and Zig-Zag correction respectively.

Analyzing the short term chart on 60 mins, we can see prices have been moving within the bigger blue corrective channel. Prices broke out of the downward sloping red channel and took support on the upper trendline of the channel as seen on the chart. An upside break of 11650 level will provide first minor positive confirmation that we might probably have bottomed out on Banking index and sector as a whole with favorable wave counts as shown above. Crucial support level now lies at 11200 and a break here would lead to steep selloff across the sector.

Banking Stocks

Banking Stocks 120 mins

Banking stocks at a Glance: SBI, ICICI, PNB, IDBI

Daily Chart: From the glance of the daily charts of the Banking stocks we can easily make out that each of these stocks are lying very close the long term support upward sloping trendline from March 2009. We have shown the crucial levels on the charts for SBI, ICICI, PNB and IDBI stocks and the long term Elliott wave counting. It is sometime imperative for us to evaluate the long term chart patterns in order to give us the direction of the short term trends. Banking stocks as a whole have been the weakest sector after real estate in past couple of weeks. The move down on SBI and ICICI Bank looked impulsive whereas appeared corrective on PNB and IDBI bank. Looking at the long term chart we think the entire move down even on SBI and ICICI should only be a 3 wave structure since we still have upward wave 5 pending.

SBI and PNB have been moving excellently within the channel formed and the wave counts are very clear. On long term basis we expect prices to bottom out soon on the banking stocks and start next leg up. This view point is valid as long as prices do not break the lower trendline of the channel shown on all the charts and remain above the crucial levels marked on the charts. Also all the stocks lie very close to 200 days Moving average just below the trendline support levels.

On short term basis as shown on 120 mins charts we have shown the crucial support and resistance levels. A break of these levels on either of the charts will indicate a strong trend to unfold in that direction. As we said long term charts provide direction for short term trends we are positively biased now on the Banking stocks as a whole with very appealing Risk Reward ratio. The Risk of taking a long position is very less as compared to the Reward that we can expect.

From 120 mins chart we can observe that PNB is “relatively” the strongest among the batch of 4 stocks where PNB made a higher low when all other stocks were making lower lows. Also PNB tend to bounce back more than the other stocks on upside after a down move. Followed by PNB, IDBI is the next relatively better stock. Both of these stock lie close to their 50 period Moving averages whereas both ICICI Bank and SBI are far away from their 50 period MA. IDBI also has given an upside breakout of the downward sloping trendline and PNB lying close to its downward sloping line.

SBI is the weakest among the sector but is showing a very strong positive divergence on 120 mins chart. This does not consider it to be ideal candidate for initiating a long position but just indicating that this sector as a whole is bottoming out.

To conclude: The Banking sector as a whole is down but should be bottoming out near current levels. A break of crucial levels shown on Daily and 120 mins chart will result into multi weeks fall but that looks to be lower probability scenario now. We are bullish as long as these levels are maintained and the current structure offers the best Risk Reward ratio in favor of an upmove. We do not rule out the possibility that the down move in banking sector is just wave 3 of bigger correction but this looks low probability scenario and if we are correct on upside the Reward will largely overwhelm the Risk present currently.

Sunday, December 12, 2010

Crucial levels to watch!

Sensex Daily

Nifty 15 mins
Sensex moved down impulsively on 9th loosing almost 500 points in a single day. It was a complete capitulation with most of the indices in red
The number of advancing to declining stocks was extremely low with hardly any stocks in green. BSE Smallcap and MidCap lost as much as 5% in a single day
All these events suggest that the downfall shall continue further. A steep rally back on 10th might convince many that the bottom is in place again but a close look at 15 mins chart reveal that we might have corrected up in only 3 waves till now as seen on intraday charts.
After analyzing Nifty on 15 mins chart we can very clearly see 5 waves down and 3 waves up till now. This just shows how amazing Elliott patterns work even on time scale of as small as 15 mins.
Nifty bounced back on December 10th and retraced exactly 38.2% at 5850. The bounce back looks almost complete with just one smaller move up pending but we should wait for price confirmation. A move below 5800 - 5780 will provide first confirmation that the down move has started again on short term basis. For medium term, wait for 5720 to be taken out for strong confirmation of negative trend.
Any move above 5950 that marks 61.8% retracement level will increase the odds that the downward trend is in danger. As long as 5950 is not taken out on upside we are bearish. There are couple of other probable scenarios to count the current wave patterns that are bullish but the chances of those working out is less. We will adopt the alternate wave counts once 5950 – 5970 levels are broken on upside. Next support zone is now at 5550 level after 5720 is broken on Nifty.

Saturday, December 4, 2010

Sensex - Turn of Events and Time Cycles at work!

We mentioned 19600 as the key level for Sensex for an upward correction. Prices moved above this level very easily and with good momentum but BSE smallcap index is still looking vulnerable and the strength does not look that strong
3.25 months Time Cycles that we mentioned last time looks to be still valid and taking Sensex higher
It is very tricky to label the down move from 21100 top to the bottom of 18950 as a clear impulsive or a corrective structure
There are couple of equally probable scenarios right now and we do not want to pick up any one of those as our preferred scenarios. The right hand bottom of chart shows the alternative bullish counts for Sensex that are equally probable at this point of time
If the upmove rally would have exhibited a corrective structure and would have shown slowdown near 19600 levels we would have been biased towards the downside but the structure of rally forces us to evaluate the bullish alternatives
A move below 19400 will confirm that the rally from 18950 was only corrective in the form of wave B and the downward trend has resumed where as a more deeper rally above 20550 will confirm that the entire down move was only corrective and we are headed for new life time highs. Time cycles are confirming this bullish alternatives and move further above 50 days Moving average will slowly raise the odds in favor of an uptrend
The entire downward move resulted in exposing of Housing Scam and from Socionomics perspective such events are bullish for the markets. Satyam scam formed wave 2 bottom of primary degree and this time Housing Scam can form wave 2 bottom of wave 5 (shown as alternative)
The nature of rally in next week will be important to observe. Even the global markets have been moving very fast without giving any prior warnings. There were times when UK market (FTSE) did not move more than 30 to 50 points on daily basis but now a movement of more than 100 points in either direction has become a routine.
When intraday volatility is so high one needs to have lesser positions and stricter risk managements even if one can be whipsawed in either direction. It is better to loose small amounts number of times than to loose everything in a single trade and be out of market for rest of the life!
In short we will wait for Sensex to either move above 20550 levels or below 19400 levels to give us a clear indication of where it wants to head!

Sunday, November 28, 2010

Sensex - An impulsive move down, 3.25 months Time Cycles operative!

We stated previously that "Please be ready for some crackling moves next week given the increase in volatility accompanied by November expiry next week". This is exactly how Indian market moved last week.
Traders would have found it very difficult to trade last week since everytime markets fall by more than 250 points it made a point of covering back the entire loss before closing again in negative
Dealing with such kind of volatility can be extremely painful sometimes as you might loose money even if you were right at the end of the day as intraday movements would have triggered stop losses
26/11 - Friday was no exception to that. In morning Sensex fall more than 300 points with a complete melt down in many of the securities like Coreprojects down almost 40%, IDBI down 12%, DLF down 12%, Punj Lloyd down 25%, and the list goes on… This was no surprise to us as we have mentioned before a move below 19300 would result in steep sell off and that is exactly how market operated
Coreproject made a low of 151 from 256 but recovered entire loss of 40% in last 1 hour. Even the company was not aware of any reason for such drastic movements in the stock and it was not driven by any news
Our belief is that news do not drive the markets. A classic example is the Housing Scam that was unveiled on Wednesday 24th November a day before expiry and market reacted to it in last 1 hour but the next day when more of the negative news were already out and everyone was expecting a huge gap down markets actually opened on a positive note. Trading based on just news would have been a disaster and LIC housing finance rallied in the morning sessions of the trade on Thursday
Sensex has been falling for more than a week and Banking & Real Estate stocks were already in a strong downward journey even before anyone was aware of the scam. The trend would just have continued whether the news would have been out on 24th or not
3.25 months Time Cycle has been working pretty accurately since past 4 cycles. If we assume that cycle to continue Sensex might hit a short term bottom by around December 7, but relying only on Time Cycles for trading can be very risky. It is good only as long as it works
Elliott wave counting can be very tricky in the current situation and we can make a case for a 3rd of a 3rd wave (very bearish) or a 5th wave in progress (short term bounce back).
We do not want to catch a falling knife and would advise not to buy in into the short term upward corrections but to use that opportunity to position oneself with keeping Risk Reward ratio in perspective towards building up short positions. 18500 level now forms a strong support zone and a move above 19600 will convey short term pull back of the entire move down from 21000 is underway.
We might be in a correction of entire rally from October 2007 but it is too soon to conclude that. Let us take a step at a time and wait for more clarity from Mr. Market!

Sunday, November 21, 2010

Sensex: Break of crucial levels and rise in intraday volatility!

Previously we stated that "price confirmation of the downmove will be obtained below 19900". This level showed its importance when falling prices stopped there for a day and then whipsawed and closed back above this level the next day but to only give up on 19th closing the week at 19585!
Prices have broken down below the crucial level and the nature of bounce also suggested corrective uptrend with impulsive downtrend thereby confirming that we are in for a correction of some higher degree
We do not rule out the possibility of corrective bounce back up till the psychological 20,000 mark before the downtrend resumes but the weakness shown by market makes this scenario a little delayed after further down move
Rally in global markets also failed to produce any sustainable bounce back in Sensex
Advance Decline ratio has been in extreme favor of more declining stocks in entire last week. Smallcap index showed very steep selloff which was not seen since many months now. Intraday movements has been quite violent and volatile - not a good sign for uptrend to be intact
A break of upward sloping trendline since March 2009 will happen if prices closes at 19300 which can result into steep selloff and bears can then take on full control of market movements
Please be ready for some crackling moves next week given the increase in volaitlity accompanied by November expiry next week.
When dealing with markets and forecasting the future course of actions we are always evaluating probabilities. Please beware no one can predict market with 100% probability and there is no such sure things as someone might claim.

Sunday, November 14, 2010

Sensex: At Crucial Juncture!

Given the recent fall on 11th and 12th November in Sensex it has now become imperative to analyse the long term structure of the market since the rally started in October 2008
As per Elliott, we know that market moves up in 5 steps and come down in 3 steps. Looking at the wave counts and following the rules it is possible that the entire move up since October 2008 that started from around 7800 might be complete. It is too soon to make that bold statement unless we get some kind of price confirmation below 19900.
RSI is also showing strong negative divergence and turned down just touching 70 level a strong bearish property of RSI. Also breadth has deteriorated significantly in past 2 trading sessions
Sensex moved below 20400 level that was important support looking at intraday charts. A move below 19900 will provide negative confirmation that we are at a larger degree correction
The other plausible outcome is the current down move is only wave ii of wave 5 and we are yet to see further rally to new highs going! Current down move on short term basis is only 3 waves and so if we see rally back above 20950 we are in for new highs
In short, we are currently in no trading zone. Structure of bounce back from here will tell us if major trend has changed. Move down below 19900 will make us bearish and move above 21000 will make a case for new highs on Sensex. Let us be reactive and not predictive and listen to what market wants to tell us in next week. Till then enjoy the Break!

Monday, November 8, 2010

A Perfect Rally in Festive season…

In our previous week's update we mentioned " Correction looks complete with Friday's low and we expect rally to start now…" This is exactly what happened and market started next leg up from the very next trading session i.e. 1st November
Key support level lies at 20400 and we expect Sensex to make new life time high very soon!

Saturday, October 30, 2010

A week worth OBSERVING, Highest ever Volumes!

Last week the complex correction continued on Sensex in form of Wave [iv] as shown on daily chart
Things to note from the week: The combined turnover in the futures and options segment and cash segment on the two premier bourses--the NSE and BSE-- was at Rs 2.82 lakh crore, up by Rs 46 crore compared to the previous record of Rs 2.36 lakh crore seen last month only.
It was worth observing the tick by tick movement on Nifty and Sensex given the volatility in last 1 hour of trading! Nifty moved down by almost 80 points in less than 2 minutes at 3 pm. The fall was co-ordinated across various securities in index like - SBI, ICICI, TCS, Infosys, Suzlon, etc. This can be as a result of program trading where the basket of stocks in huge volumes were sold within few seconds. This is just a guess, no one knows what exactly happened. Flash Crash that happened in US market where DJIA fall by almost 10% in 1 day in first week of May still remains mystery to everyone. Even the exchanges and watch dog of US market cannot conclude with convictions what could have caused it
It was also worth observing that Nifty November expiry future was trading at an astonishing premium of almost 80 points. Where were all the arbitrators then!!! The premium can be attributed to heavy rollovers and fresh long buildups in November series but still this figure is worth noting
As we said last week, Key support level over coming week lies at 19800, this level was only breached momentarily on Friday before index bounced back and closed above psychological mark of 20,000. Correction looks complete with Friday's low and we expect rally to start now. A close below 19750 - 19800 would require addional downfall before we turn up!

Monday, October 25, 2010

Power & Respect for 123.6%!

We marked on Sensex on 27th September that wave [iii] should end near about 123.6% of wave [i] given the significance of this fibo level in Indian Markets
This is precisely what happened. This level of 123.6% * Wave [i] was tested on 4th,6th, 13th & 14th October and prices failed to close above this level which is at 20700 and started retracement in form of wave [iv]
We have been bullish on Sensex since it broke above 18250. The major rally of final wave 5 is also over but over short term basis we still have enough room for upside rally.
Daily chart shows that RSI took support on upward trending trendline and Sensex completed minor wave (iv) of wave 5. We have either started wave (v) that will take us atleast till all time high of 21500 or shall start soon after one minor dip.
Key support level over coming week lies at 19800. As long as this level is intact we remain bullish and shall move up atleast till 21500, ALL TIME HIGH!

Monday, September 27, 2010

Trend up still intact! But Risk Management crucial…

Sensex continues to behave in a predictable fashion. We mentioned couple of weeks back itself that we expect Sensex to rally atleast till 20,000 levels!
Last week we said "A close observation of internal wave structure on smaller time frame suggests that a minuttee 3rd wave rally might be near an end we shall see short term consolidation. Market breadth was not that promising for a day or 2 in between suggesting we might soon consolidate and enter into wave v of [iii]" This is perfectly how market moved in form of minuttee 4th wave and starting 5th wave of [iii]
There are no signs of exhaustion as yet and we still continue to ride the trend upwards.
A move down below 19770 could suggest we are in wave [iv] and can expect some retracement of current steep movement up
At current levels current wave [iii] is approximately equal to wave [i] and we do not rule out the possibility of wave [iii] reaching till 20600 to 21000 - 1.236 / 1.382 * Wave [i] as long as 19700 level is intact!
Caution: When trend changes, a steep correction cannot be ruled out given the steepness in rise and so a strict Risk Management, Position sizing and use of stop losses is extremely important. Complacency can take over even the best of the traders during such times and we shall pinch ourselves from time to time to be awake and not loose our foresightedness...

Sunday, September 19, 2010

Strong rally continues!

We mentioned in our previous blog that "We expect wave [iii] to last atleast till 20,000 levels. Market should give us a hint if it wants to take some other path. Enjoy the rally as long as it continues!"
Sensex continued the rally last week as well and closed exactly at 76.4% length of wave [i]
A close observation of internal wave structure on smaller time frame suggests that a minuttee 3rd wave rally might be near an end we shall see short term consolidation. Market breadth was not that promising for a day or 2 in between suggesting we might soon consolidate and enter into wave v of [iii]
It is very tricky to count the internal waves in such a strong rally and prediction of precise turning points is a challenge
So lets continue to be in the trend but taking out partial profits and following the rule of trailing stop loss!
Range of 19250 - 19300 should be acting as a support over very short term and 20000 as strong psychological resistance!

Tuesday, September 14, 2010

A perfect wave [iii] RALLY! As Anticipated!

We mentioned in our previous blog that "This scenario calls for some substantial up movement to come in next week in form of wave [iii] of 5"
This is exactly how prices moved up in form of wave [iii] of final wave 5
The movement on Sensex have been quite smooth with no selling pressure yet. The momentum so far has been strong.
We do not want to call for a correection in this strong moving market but ride the trend till it proves to be terminating either by price confirmation or give some indication in momentum divergence.
Sensex rally of past few days has set in a perfect example of how strong wave iii movements can be and very much rewarding if predicted early. Many of the call option writers are in big trouble now as we have been stating in our previous writeups that writing options is not such a good strategy when vol is so low
We expect wave [iii] to last atleast till 20,000 levels. Market should give us a hint if it wants to take some other path. Enjoy the rally as long as it continues!

Monday, September 6, 2010

Final leg up Not Yet Complete!

Sensex broke down out of wedge as predicted but we were expecting prices to reach atleast start of the wedge near 17400 levels but prices moved down only in 3 wave structure indicating the intermediate trend is still "UP"
Prices made a low near 17820 and turned back up during mid week, a 23.6% retracement level of the rally from 16000 again proves importance of this Fibo level in Indian markets. Failure of price to retrace even 38.2% suggests that the final wave 5 of the entire rally since October 2008 is still ongoing and we probably completed only wave [i] of wave 5.
This scenario calls for some substantial up movement to come in next week in form of wave [iii] of 5
It will be interesting to see how prices move next week and whether up move is met with additional selling pressure or is it a smooth journey.
Advance decline ratio also improved substantially in second half of the week
Expect some good movement on UPSIDE in coming week and move above 18450 will provide further positive confirmation!

Saturday, August 28, 2010

Prices breakdown from Diagonal Triangle (Wedge) after Throwover AS EXPECTED!

As we have been mentioning in previous updates that the throwover looks complete and price shall reverse below 18500, Sensex made a high 18475 and reversed the direction
Even before wave (iii) of v started developing I mentioned in previous blogs that ending diagonal is the likely pattern that should develop looking at the weak momentum and that is exactly what has happened. It is amazing to see when you are measuring the pulse of Mr. Market and understanding the rhythmic movements it is conveying. But please beware we should also be prepared for surprises and alternatives!
Sensex broke below the lower trendline of the wedge on 27th August giving away as much as 250 points from day's high.
The red direction line was shown on the chart after 17th August move and Sensex is catching up with it even now
We expect a move atleast till 17400 level i.e. the start of the diagonal triangle. A bounce from there will tell us if we have completed the major move 5 or just a minor i of primary 5
The sectors that were taking Sensex higher in past few weeks were Banking, Auto and Real Estate which also gave away key support levels on Friday's fall
The market movers like Reliance, Infosys, Tatasteel, Hindalco were already laggards in complete rally of wave v and Friday's down move added key levels breakdown for DLF, Icicibank, Tatamotors. A clear breakdown in smallcap index also added the fact that selloff was across the board
The number of declining stocks on BSE were more than 2000 in past 2 days which is not seen for atleast 3 months now
For intermarket analysts, movements on Sensex has been a great mystery as the fall came on the day when majority of global indices were in green which actually is a surprise since Sensex was exhibiting the tendency since past few months of moving sideways or only drifting (not falling significantly) lower when global markets fall and rallying as soon as get an opportunity to do so.
To summaries: Expect further fall in Sensex atleast till 17400 levels before a significant up correction ensues and nature of correction will convey the further path. A movement back above 18350-18400 level will force us to evaluate alternative scenario

Thursday, August 19, 2010

Standing on the Edge! Exact behaviour as ANTICIPATED!

Sensex moved exactly in the ending diagonal pattern we anticipated last week on our blog.
With today's rally the pattern looks complete. Today's high is just shy of few points to make all time high after the crash of 2008.
Just check a perfect division of golden ratio at wave 4 and RSI divergence at ending diagonal pattern. The 3 wave counts of ending diagonal are also very much clear. All this forces me to believe that the top is either in or a final top with a throw over will be made in tomorrow's session before we start intermediate term decline.
A price confirmation will be obtained by a move below 18000 levels!
Today's rally was sufficient enough to convert even more number of bears into bulls as they start thinking of a breakout.
Our negative view will be challenged if the rally moves above 18500 with potential of more energy left but the chances are minimal.
A long awaited trend may finally be starting....

Thursday, August 12, 2010

DJIA mimicking wave 2 correction exactly like 1987!

DJIA 1987 & 2010
DJIA mimicking wave 2 correction exactly like 1987!
Can you identify the difference in wave 2 in the above charts shown
The first chart is of DJIA in 1987 just before the crash. Wave 2 ended at 2650 and market fall to 1620 in less than 11 trading sessions
Market has mimicked exactly the same corrective pattern NOW
I was shocked to see even the retracement levels are perfectly in sync with end of waves "a" & "c" in spikes
It looks nothing changed in more than 2 decades in terms of people behaviour and psychology. It is correctly said - technology cannot change the inherent behaviour of people & they will act exactly the same way even if a millennium is passed!!!

Tuesday, August 10, 2010

Wave5 continues as anticipated…

As anticipated, Sensex found support and did not move below the level we labeled as wave (ii) of v of final wave 5
Given the weakness in the structure and failure to rally sharply even after the breakout that everyone is talking about I think we are going to develop into a Diagonal triangle pattern
The path for the Diagonal triangle is as shown
This last leg of rally has been successful in turning maximum of the remaining bears into bulls
The euphoria has picked up in the media as well and everyone is talking about the breakout but just to see prices still struggling and not moving up in a strong trend
This is just going to eat up on emotional and psychological aspect of the trader without paying much for the efforts put in
A completion of this pattern shall therefore lead to a steep decline as very short term traders starts squaring off their long positions in frustration of slow moving trend
We will update you if any variation to this pattern is developing, till then high risk traders can go long but only with a strict stop loss and also keeping an action plan ready in case of a large gap down opening!

Monday, August 2, 2010

No Negative Price Confirmation Yet, Be Cautiously Positive!



Sensex has shown an impulsive move up since last week of June

One possibility was that the 5 wave up structure was complete but given the recent strength, it looks wave v of 5 is moving up in an extended form
We have been constantly saying not to initiate any positions unless we obtain some kind of price confirmation and that strategy has paid off well. We are working on a reactive strategy rather than predictive strategy
Sensex did not move below the key levels shown and given the relative strength of Indian Markets I would like to be cautiously positive!
A long position can be initiated with a strict Stop loss 17850 over a short term period. We will update of any weakness seen or when other higher probable wave structure looks to be developing

Monday, July 19, 2010

Rule of 1.764 in TIME!

Sensex Weekly

The rally from late June on Sensex developed into a clear 5 wave move up. An ending diagonal move has 3-3-3-3-3 pattern and a 5 wave move up forces us to reconsider our wave counts
Today's chart shows our revised wave count supported by 5 week ROC. As per elliott wave guidelines 3rd of 3rd waves should produce maximum momentum and we should see divergence between a 3rd wave and 5th wave of same degree. This is clearly visible in weekly chart as highlighted. Current count satisfies that guideline!
Another guideline says that Wave 4 is most likely a triangle. Wave 4 on Sensex is not a clear triangle but it is worth a consideration given the probable scenarios
The weekly chart shown throws light to some subtle points which requires serious consideration
Time has emerged as THE KEY ELEMENT in past few months. Market as a whole has not moved anywhere but if one could have timed the moves down and up correctly, would have earned some decent returns
The key observation to be made is the Time relation between Wave 2 and Wave 4. Wave 2 took approx 18 weeks to develop and Wave 4 took 32 weeks to develop i.e. 1.764 * Wave 1
We have been constantly speaking about the importance of 76.4% in Indian markets for many months now. This level has now shown its importance not only in retracements, projections but even in Time relationships
We do not rule out the possibility of current wave 5 to extend further but given the global scenario and divergence of Indian Markets with Rupee the probability is low
Key things to observe: A steep correction in form of 5 waves, break of 17400 level with further negative confirmation by break of 16600 levels. This will confirm a correction of higher and intermediate degree!

Sunday, July 11, 2010

No Trading Zone!!!

Sensex, Midcap, Bankex, IT
Sensex is still hovering around its previous top near 18000 levels
We said in our previous blog that wait for 17100 levels to be taken out before initiating any position
Sensex did move down a bit only till 17400 and in form of a downward flag (a small bullish pattern) to give a breakout on upside
We do not rule out the possibility of Sensex taking out the previous top near 18047 marginally before turning lower
Currently we are in "NO TRADING ZONE" as shown in today's chart
We see that Midcap index is making a new top, Bankex and IT index are behaving similar to Sensex
Reliance a major index mover is moving in a triangle pattern for almost a year now no where near the top whereas Infosys is at life time high
Metal index is well below its previous top made a few months back whereas Auto index is at life time high
Global markets: DJIA, FTSE, Nikkei, HSI , moved down in 5 waves pattern and are now correcting upwards whereas Sensex still stays near its highs
This scenario is very similar to what happened in Jan 2008, the world markets started correcting steeply but Indian markets kept on moving in upward direction only to realize in mid Jan that we cannot move up alone in isolation to world equities and we finally CRASHED!
Whenever the Indian markets do things that is dichotomous to world markets the theory of Decoupling, Domestic demands & Growth comes into play for justifying the movements
But just be cautious we are in times when correlation is high during turning points but the magnitude of movements may differ
MSCI Asia pac index is already down for the year similar to that in Jan 2008 and we crashed approx 18 - 20 days after Asia pac started moving down in 2008
I will not be surprised to see that same scenario if plays out again, I will not be surprised to see a crash in Indian equities within next 2 weeks, I will not be surprised to see Sensex make a new high of the rally that started in early 2009 before the melt down.....
To Conclude: NO TRADING ZONE till we see a move below 17200 - 17100 levels. Going long is way too dangerous given the Risk Reward ratio & the global scenario!!!

Sunday, June 27, 2010

Nearing the Top AGAIN!


Cycle analysis indicates a top is near. Please beware Cycle analysis does not gurantee a down move but only price confirmation does. It does provide time sensitivity to the analysis. Timing the market is becoming increasingly important given the sideways direction and TIME is the most difficult parameter to predict. Cycle analysis does provide some highlight on TIME
William %R as shown is providing a very good indication of Trending or a Trading range market
Past 6-7 months William %R shows Trading range market
A movement tween -60 and -90 will indicate a strong downward trending market
Wait for 17100 levels to be taken out. A further negative confirmation of bigger move down will be obtained below 16500!

Tuesday, June 22, 2010

BEARS TRAPPED YET AGAIN! But Negative Divergence with Rupee and falling weekly momentum continues!!!

Sensex Weekly Momentum

INR - Sensex Divergence

We were expecting Sensex to pause near 76.4% retracement levels i.e. around 17500 but the rally continued
This is for the 3rd time that Bears have been trapped on the wrong side of the trend. This exactly explains why MONEY and RISK management are equally important along with Technical / Fundamental analysis
Avoid Stop loss and the EMOTIONAL IMBALANCE will be much more than the FINANCIAL IMBALANCE
Please beware the future direction of the Markets are only probabilistic and it can become increasingly difficult to predict when Mr. Market is not moving in any clear trend
Still good amount of money could have been made in the down move in MAY as Sensex moved exactly as we were anticipating only to give away a part of profit in the current rally as it should have triggered your stop loss levels a week before, thereby locking reasonable amount of net profit
Sensex is almost at the previous top around 18000 now
This warrants us to adopt the alternative scenario we mentioned earlier that wave 5 is still in progress
There are couple of ways in which the sub-divisions of ongoing wave 5 can be labeled, one of acceptable wave count is as shown
The reason for me to still believe that the intermediate top is near is the weekly RSI divergence and divergence of Sensex with INR
Sensex is near the previous top but USDINR has still retraced only 61.8% of its gain from the bottom of 44.30. This along with waning weekly momentum suggests we are in wave 5 and top should be in place soon if not yet!
A move below 17100 levels will provide negative confirmation. Wait for that level to be taken out and this time it will probably be the BULLS that will run for cover!!!
Caution: Please do not try to pick up a top, It cannot be predicted even after month long divergences unless it has occurred.