Monday, September 8, 2014

Nifty: Hurst Time Cycles and why we think it is extremely important to apply with Elliott wave!

Nifty: Hurst Time Cycles and why we think November 2014 to March 2015 can be a period of accelerated selling!

Indian markets have continued to inch higher everyday and has crossed above the psychological level of 8000! Crossing of psychological levels can create euphoria as the news will be all over the place across media and retailers might get carried away exactly at the wrong time. We are not saying this rally is ending right now but it is important to adopt stringent risk and money management strategies since the current up move is in matured stage.

This time we are using a different concept – Hurst Time cycles to highlight why we think that the fuel is running out.  Nevertheless, please understand the short term trend for now is positive and detailed analysis is given in our short term update daily research. However, from Investment perspective this is not the ideal time and November 2014 to March 2015 can be a period of accelerated selling!

Let us look at below chart and the explanation on why October month can be important topping process!

Figure 1: Nifty weekly chart: 

Hurst Time cycles: J. M. Hurst was an aeronautical engineer who applied the advanced concepts of physics and cycles to stock markets. He had scientific approach to cycles and came out with conclusion that there are certain standard cycles that freely traded markets follow irrespective of their demographics or asset class.

Understanding Nominality: A few standard cycles that tend to work across are 54 months (230 weeks), 18 months (80 weeks), 9 months (40 weeks), 20 weeks and 10 weeks. Going on lower degree scale there are again a predefined set of cycles that can be applied right from daily to intraday charts. These are nominal set of cycles.

Understanding Harmonicity: Cycles are harmonious in nature and are normally governed by the factor of 2 except the 54 Months cycle which is harmonious by factor of 3. This means that as 54 months cycle exists there is 54/3 = 18 months cycle, 18/2 = 9 months cycle. So 54,18 and 9 months become important set of predefined cycles.

Understanding Synchornicity: This concept of cycle science indicates that cycle lows are synchronous in nature. It means that if the larger cycle is forming a low then the smaller cycle by default forms a low at that point. So a 54 months cycle low will result into lows of 18 months, 9 months and so on.

The above 3 concepts are the building blocks of cycle theory and makes it very easy for a cycle analyst to predict important turning junctures.

Let us now move on to applying these techniques to Nifty chart and see the important information we get using this Advanced Cycle concepts!

The chart shows 5 important cycles derived from the nominal set of 230 W, 80 W, 40 W, 20 W and 10 W (W – weeks). To start with we are assuming October 2008 as the major low. The actual cycle close to this nominal set is 252 weeks that we have applied. So if 252 W cycle has bottomed in Oct 2008 then all the lower cycles should have bottomed exactly at same time. The different vertical lines on chart represent different cycle lengths and at the bottom the cycle lows are also marked with stars for easy reference. So a star marked against 230 w cycle shows a low formed there. This cycle then bottomed out in August 2013 and both of the times we have seen strong multifold increase in prices post the cycle bottom. The next low of 252 W cycle is now in 2018 which can be year of major bottom.

The cycles that are most important to us are 84 W (nominal cycle 80 W) and 41 W (nominal cycle 40 W) that determines the medium term trend. As per 84 weeks cycle prices are now in the second half of cycle which is associated with topping formation. 75% of the cycle completion is the area of maximum downside acceleration which is coming in November 2014. By December 2014, 41 weeks cycle will also enter into its 75% completion stage and this can put pressure increasing the downside speed. Both of these cycles have bottoming period in April 2015. Post that, we can expect uptrend to resume. So as per, Hurst Time Cycle analysis we get a window of November 2014 to March 2015 which can be period of downside correction and an important low can be formed in April 2015.  This gives us fair idea with respect to time.

Please remember the drawback of cycles is that it has high predictability during important lows but topping process can be time consuming and challenging to predict. The best possible probability looking at the various cycles is that October can be the month where a medium term top can be formed and November 2014 to March 2015 can be a period of accelerated selling. So September can still continue the uptrend for now as long as important supports are not broken. We have so far talked about Time but it is apparent to look at price as well and the pattern that will be in sync with the forecasted time element.

Neo wave running Triangle pattern: Here we are showing a running triangle possibility using the Advanced concepts of Elliott wave – Neo wave. As per this theory all the legs are corrective in nature. Even the rally from the lows of August 2013 is part of correction. Corrective waves not necessarily end below the previous up wave but can end above the high of previous up leg. We call such corrections as running since the correction does not produce any price retracement. Currently, wave [D] is on going on upside for the target near 8270 – 8300 based on projection of wave [B] equal to wave [D]. Please bear in mind that the upside projection is given based on Fibonacci level and should NOT be used as ultimate target since there are no price resistance. But looking at Time cycle this looks the most probable pattern and reversal area. To get better turning areas it is important to look at short term charts and patterns mentioned in the daily research report.

In a nutshell, for now, avoid catching a top as this rally can turn euphoric and prices can move beyond the given target zone which is only based on Fibonacci projection. The best probable path is shown on the chart. For medium term investment positions use 7600 as an ideal stop and it is better to be out if prices break below this level as the next leg on downside can then start that can take Nifty towards 6200 – 6300 support zone by April 2015. For now, stay in direction of the trend which is currently upside and follow trailing stop methods to get the most out of the current leg of euphoria!!!

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Attend the 2 days training workshop that will provide in-depth analysis on Advanced concepts of Elliott wave – Neo wave and how it can be combined with Time cycles. This is one of the most advanced training in technical analysis. It focuses not only on Price but also on Time which is an important element for any trader or investor. There are no shortcuts to Trade or Invest profitably. It comes with lot of research, psychology, objectivity, tested methods. The above study ensures increasing the probability of success while trading and also highlights the area when one should be patient and avoid taking positions. Making money is one thing but to preserve what is made is the Key to trading success!!!
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