Monday, January 31, 2011

Sensex / NSE Midcap - Higher degree & Multi month correction, Time cycles still intact!

The ongoing correction is Sensex is of higher degree than everyone might be anticipating
We get a confirmation of this when we look at the Midcap chart shown below. It confirms a correction of entire rally from March 2009 bottom has started
3.25 Time Cycles have been pretty accurate in predicting the turn and even wave B rally took place near the Time cycle. The next bottom should be made near second week of March so we still have long way to go on downside before any significant rally can happen
We know from our past analysis that 23.6% has very significant role to play in Indian markets and stocks and so we would provide some respect to that level in this downfall as well. The 23.6% retracement of the entire move up from October 2008 in Sensex till November 2011 comes near 17900 levels. This level should provide some short term support
The wave count indicates we are either in wave C or wave 3 of primary wave 2. Wave 2 generally retraces 61.8 % of entire wave 1 but let us take one step at a time before forecasting that far. The current wave looks to be in wave iii of 3 and any support should be short lived
Any move above 19400 levels will make the entire downward correction quite complex but we would stick with current bearish wave counts as long as prices are behaving exactly how we have been anticipating
We mentioned in previous blog as well that "capitulation might happen anytime next week" and that is what is happening in Indian markets
We will continue to see surprises on downside and will not be surprised on increased intraday volatility and further steep downfall with short term supports just not working for Indian markets.
The general psychology is that markets have fallen heavily last week and so there will be buying now and traders initiate long positions but that is extremely dangerous strategy. There is no definition of a significant fall. A fall of 5% looks very significant but only to look minuscule in front of a fall of 25 %. DLF has fallen 7% on Thursday but only to fall more 7% on Friday. This is what happens when strong trends are going on in that direction. So please refrain yourself from using the word significant as it is more relative than an absolute adjective!
In short, we might see some support coming in at 17900 levels on Sensex but that can be short lived if we are indeed in 3rd of 3rd violent wave! Any significant bounce from there will be good to observe but for now lets not come in the way of the bigger trend!
NSE Midcap Index
Movement in this index represents the speculative activities and the animal spirit of the traders and speculators. It is seen that the ongoing correction is bigger than any other correction that happened during the period from March 2009 bottom.
We can see on daily chart that prices have moved down impulsively below the upward sloping trend channel and are now moving steeply lower. This just indicates that speculative activities are slowing and the worse hit stocks will be the small cap and the mid cap stocks.
RSI has also failed to show any significant bounce back and stayed below 50 lately. We are convinced that this is a higher degree correction in form of wave 2 that can retrace anywhere between 38.2% to 61.8% of the entire move up from 3000 to 9800.
Our first target is the area of previous 4th wave that comes in at 7250 and this also mark the zone for 38.2% retracement level. We do not expect any significant bounce back now before this level is achieved.


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