Monday, March 7, 2011

Indian markets at crucial juncture!


Sensex: Alternate Possibility

This time the Budget day produced the swing in the opposite direction that is up which was a surprise to us. But prices did close near the opening which we were expecting that magnitude of swing on closing basis remains low. A strong rally on the follow-up day was broad based and this confirms that we are still in wave X and it is not over. If you remember we have said in our report couple of days back that “recharge your emotions for the tough times ahead” and this is what is happening when wave X is in progress.

Prices gapped up on Friday and moved very quickly above 5600 forming a top at 5608. It took Nifty entire day to close that gap and Indian markets ended flat on the last day of the week. Nifty currently lies at very crucial juncture and a rally from here back above 5600 will indicate more steam left before this leg up is complete and a move below 5470 will increase the odds that we might start next leg down. We would wait for market to give us a clear direction in next 2 to 3 days. We would keep this scenario as preferred and would look for market to top out and start next leg down.

For now, look for 5470 as support and 5600 as resistance level and the way prices move above or below these levels will give us further path ahead!

We are presenting an alternative count as seen on above Sensex chart which is very bullish but we would keep that as an alternative.

Reason for an Alternative:

As seen on the Sensex Daily chart above, we are nearing the Time cycle low. This indicates we should be turning up soon if the current Time cycle is still valid. Also the wave count shows that we have moved down in 3 waves and that can mark an end to the corrective down move. RSI as shown is exhibiting strong recovery even when prices failed to move up significantly. The relative strong move of RSI compared to Sensex indicates positivity.

Nifty Dividend Yield:

Also based on the Nifty Dividend Yield chart I forwarded, we can see that the dividend yields currently are lying at the levels which were seen during the start of wave 3 of 3 of primary degree in 2005. This was the level which was also seen before start of exponential wave primary 5 in 2006 and 3rd of 5th in 2007. If this relation holds we might be on a verge to start a strong next leg up in the form of a 3rd wave of primary degree again!

We remain cautious of this alternate possibility with our preferred count as shown on Nifty 60 mins chart. The nature of price move in next week will be crucial to observe and how prices move near support and resistance levels will give us further indication if we need to adopt the alternate possibility as preferred.

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