Monday, July 19, 2010

Rule of 1.764 in TIME!

Sensex Weekly

The rally from late June on Sensex developed into a clear 5 wave move up. An ending diagonal move has 3-3-3-3-3 pattern and a 5 wave move up forces us to reconsider our wave counts
Today's chart shows our revised wave count supported by 5 week ROC. As per elliott wave guidelines 3rd of 3rd waves should produce maximum momentum and we should see divergence between a 3rd wave and 5th wave of same degree. This is clearly visible in weekly chart as highlighted. Current count satisfies that guideline!
Another guideline says that Wave 4 is most likely a triangle. Wave 4 on Sensex is not a clear triangle but it is worth a consideration given the probable scenarios
The weekly chart shown throws light to some subtle points which requires serious consideration
Time has emerged as THE KEY ELEMENT in past few months. Market as a whole has not moved anywhere but if one could have timed the moves down and up correctly, would have earned some decent returns
The key observation to be made is the Time relation between Wave 2 and Wave 4. Wave 2 took approx 18 weeks to develop and Wave 4 took 32 weeks to develop i.e. 1.764 * Wave 1
We have been constantly speaking about the importance of 76.4% in Indian markets for many months now. This level has now shown its importance not only in retracements, projections but even in Time relationships
We do not rule out the possibility of current wave 5 to extend further but given the global scenario and divergence of Indian Markets with Rupee the probability is low
Key things to observe: A steep correction in form of 5 waves, break of 17400 level with further negative confirmation by break of 16600 levels. This will confirm a correction of higher and intermediate degree!

Sunday, July 11, 2010

No Trading Zone!!!

Sensex, Midcap, Bankex, IT
Sensex is still hovering around its previous top near 18000 levels
We said in our previous blog that wait for 17100 levels to be taken out before initiating any position
Sensex did move down a bit only till 17400 and in form of a downward flag (a small bullish pattern) to give a breakout on upside
We do not rule out the possibility of Sensex taking out the previous top near 18047 marginally before turning lower
Currently we are in "NO TRADING ZONE" as shown in today's chart
We see that Midcap index is making a new top, Bankex and IT index are behaving similar to Sensex
Reliance a major index mover is moving in a triangle pattern for almost a year now no where near the top whereas Infosys is at life time high
Metal index is well below its previous top made a few months back whereas Auto index is at life time high
Global markets: DJIA, FTSE, Nikkei, HSI , moved down in 5 waves pattern and are now correcting upwards whereas Sensex still stays near its highs
This scenario is very similar to what happened in Jan 2008, the world markets started correcting steeply but Indian markets kept on moving in upward direction only to realize in mid Jan that we cannot move up alone in isolation to world equities and we finally CRASHED!
Whenever the Indian markets do things that is dichotomous to world markets the theory of Decoupling, Domestic demands & Growth comes into play for justifying the movements
But just be cautious we are in times when correlation is high during turning points but the magnitude of movements may differ
MSCI Asia pac index is already down for the year similar to that in Jan 2008 and we crashed approx 18 - 20 days after Asia pac started moving down in 2008
I will not be surprised to see that same scenario if plays out again, I will not be surprised to see a crash in Indian equities within next 2 weeks, I will not be surprised to see Sensex make a new high of the rally that started in early 2009 before the melt down.....
To Conclude: NO TRADING ZONE till we see a move below 17200 - 17100 levels. Going long is way too dangerous given the Risk Reward ratio & the global scenario!!!