Monday, May 23, 2011

Sensex: Time cycles - Alternate counts

Sensex Daily

Nifty 120 mins

Sensex Daily chart above shows the long term trendline with support level coming at 17,700. We have shown Blue and Red color Time cycles. Blue color time cycles are original and suggest lows might occur by June last week. But if we adjust that time cycle to accommodate recent low that occurred on mid Feb near 17400 we can see a low forming soon by May end(Red color time cycle). The chart also shows the alternate wave counts but this count fits well with cycle lows and support levels shown near 17,700. We will adopt this wave count after seeing how prices react from these levels and if we see a steep rally after hitting displaced cycle lows!

Indian markets broke below key levels just to re-enter into those levels without giving any significant down move. A failed pattern is dangerous as it can lead to short squeeze on the opposite side. We can see what has happened to stocks like LT when there is a short squeeze where shorts run to cover their positions.

We are keeping the alternate possibility chart of Sensex which shows we might be close to the bottom of the entire bigger correction that started near 21000. As we said before even time cycles are supporting this. We will adopt this alternate count when we see deep rally in Indian markets but for now we will stick with wave structure as shown on Nifty chart.

Nifty chart shows a strong positive divergence in momentum which means downward move is loosing steam. We can count the current move as i-ii, i-ii kind of a scenario which expects a steep move below 5400 or we are in a irregular flat correction that expects prices to move close to 5600. For now we are in no trading zone and a clear break of 5400 will indicate a strong down move has probably started.

Given the weakness in the global markets we might open gap down today but might soon cover the gap if we are in alternate irregular flat pattern. Let us wait and watch with patience what does market wants to do and act only if key levels on either side are taken out.

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