Sensex: Extremely crucial week close to confirming next BULL TREND BUT...

The below research report was published on 18th November morning before equity markets open. To subscribe to the daily research report  "The Financial Waves STU" visit http://wavesstrategy.com/index.php/store.html

Bottom Line: Sensex Long term charts along with Nifty still keeps both the possibilities open. This week’s action will be very crucial.

Sensex Monthly chart:

 Nifty daily chart:

          

Nifty daily chart: Bullish alternative

Nifty 10 mins chart:

Wave Analysis:

In previous update we mentioned that, “Existing short positions should now trail their stop towards 6060 levels and preferably on closing basis. Fresh shorts should be initiated only with caution since downtrend is already in its 7^th day and move above 6060 can result into deeper retracement on upside.”

We are showing Sensex / Nifty 5 different charts with 2 plausible scenarios on long term basis.  The following gives a detailed explanation right from long term to short term counts.

Sensex long term chart: Sensex monthly chart shows the long term counts since 2008 onwards. As mentioned earlier, the complete correction since 2008 is either a triangle pattern or a complex correction in W-X-Y-X-Z formation. Previously we mentioned 21100 level as crucial for Sensex on upside but the shorter term charts, negative divergence, slower momentum, reduction in speed of up move all warned us that even if Sensex touched life time high it is not sustainable and the market obliged us by giving a fall of more than 1200 points. Now after reversal seen on Friday the possibility is still open for both of the scenarios.

Nifty daily chart 1^st possibility: The 1^st daily chart shows one of the possibilities for Nifty forming a complex correction. To make this in sync with long term counts it seems wave [X] got over at the high of 6110 and since then wave [Z] is ongoing. The 1^st set of correction got over at the low of 5118 and after that a smaller degree (x) wave on upside got completed at the recent high of 6332. The current leg on downside is probable start of 2^nd set of correction of wave [Z]. As per this scenario the correction that started in 2008 is still ongoing and has few more months to run before the next bull trend starts.

Nifty alternative bullish possibility: The 2^nd daily chart shows bullish possibility where the entire correction since 2008 onwards formed a triangle pattern and got completed near the lows of 5118. Post that the upside move was impulsive wave i and wave ii is probably forming an Irregular Flat correction with c failure as wave b was close to 161.8% of wave a. Once this wave ii gets completed next leg on upside in the form of wave iii should start. This wave iii should be very fast, strong, having lot of momentum and strength to take out the highs and enter into unchartered territory very quickly. If this is the correct scenario the movement can be violent and everyone will keep guessing and evaluating the reason for such a move. This week’s price action is extremely crucial if prices are indeed starting the 3^rd leg on upside.

The reason why we are showing this alternative scenario now is that the move down from the high of 6340 to current levels even if covered more than 350 points we did not see a single fall more than 100 points and on Friday the up leg easily registered 100 points on upside although on intraday basis.

Short term possibilities: As shown on 60 mins and 10 mins chart, the move down can be considered either corrective or impulsive. A move above 6100 will indicate that the impulsive move on downside is over and we are headed for deeper retracement towards 6200 – 6250 on upside whereas if the Gap area is filled and prices move back below 6000 it will increase the odds that one leg on downside towards 5920 is pending before the upside retracement can start. On other hand if the Gap up action with broader market continues this will be a strong positive sign.

To explain the above technical view in a nutshell, any move above 6300 with strong momentum, breadth, Gapping action, participation from broader markets will indicate breakout from multi-year correction on upside whereas increase in momentum on downside and break of 5700 will increase the odds that the correction since 2008 has still few more months to continue before next Bull trend starts.

Over short term, close of Gap created on Friday will be bearish and move below 5980 will extend the correction towards 5930 or 5820 whereas any move back above 6100 will create higher highs and higher lows and will result into deeper retracement at least towards 6200 – 6250 levels. Traders following our trailing stop method should exit the shorts and locking a profit of nearly 200 points on Nifty and reinitiate shorts only below the previous low near 5970-5980 levels. Any continued Gap up action which remains unfilled throughout the day with broader participation will be positive.

The above research was published on 18th November 2013. To see the latest price action and changes made to the above counts & For daily research report with Nifty and 3 stocks visit http://wavesstrategy.com/index.php/store.html or contact us at helpdesk@Wavesstrategy.com or call us on +91 9920422202