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!