Sunday, November 28, 2010

Sensex - An impulsive move down, 3.25 months Time Cycles operative!

We stated previously that "Please be ready for some crackling moves next week given the increase in volatility accompanied by November expiry next week". This is exactly how Indian market moved last week.
Traders would have found it very difficult to trade last week since everytime markets fall by more than 250 points it made a point of covering back the entire loss before closing again in negative
Dealing with such kind of volatility can be extremely painful sometimes as you might loose money even if you were right at the end of the day as intraday movements would have triggered stop losses
26/11 - Friday was no exception to that. In morning Sensex fall more than 300 points with a complete melt down in many of the securities like Coreprojects down almost 40%, IDBI down 12%, DLF down 12%, Punj Lloyd down 25%, and the list goes on… This was no surprise to us as we have mentioned before a move below 19300 would result in steep sell off and that is exactly how market operated
Coreproject made a low of 151 from 256 but recovered entire loss of 40% in last 1 hour. Even the company was not aware of any reason for such drastic movements in the stock and it was not driven by any news
Our belief is that news do not drive the markets. A classic example is the Housing Scam that was unveiled on Wednesday 24th November a day before expiry and market reacted to it in last 1 hour but the next day when more of the negative news were already out and everyone was expecting a huge gap down markets actually opened on a positive note. Trading based on just news would have been a disaster and LIC housing finance rallied in the morning sessions of the trade on Thursday
Sensex has been falling for more than a week and Banking & Real Estate stocks were already in a strong downward journey even before anyone was aware of the scam. The trend would just have continued whether the news would have been out on 24th or not
3.25 months Time Cycle has been working pretty accurately since past 4 cycles. If we assume that cycle to continue Sensex might hit a short term bottom by around December 7, but relying only on Time Cycles for trading can be very risky. It is good only as long as it works
Elliott wave counting can be very tricky in the current situation and we can make a case for a 3rd of a 3rd wave (very bearish) or a 5th wave in progress (short term bounce back).
We do not want to catch a falling knife and would advise not to buy in into the short term upward corrections but to use that opportunity to position oneself with keeping Risk Reward ratio in perspective towards building up short positions. 18500 level now forms a strong support zone and a move above 19600 will convey short term pull back of the entire move down from 21000 is underway.
We might be in a correction of entire rally from October 2007 but it is too soon to conclude that. Let us take a step at a time and wait for more clarity from Mr. Market!

Sunday, November 21, 2010

Sensex: Break of crucial levels and rise in intraday volatility!

Previously we stated that "price confirmation of the downmove will be obtained below 19900". This level showed its importance when falling prices stopped there for a day and then whipsawed and closed back above this level the next day but to only give up on 19th closing the week at 19585!
Prices have broken down below the crucial level and the nature of bounce also suggested corrective uptrend with impulsive downtrend thereby confirming that we are in for a correction of some higher degree
We do not rule out the possibility of corrective bounce back up till the psychological 20,000 mark before the downtrend resumes but the weakness shown by market makes this scenario a little delayed after further down move
Rally in global markets also failed to produce any sustainable bounce back in Sensex
Advance Decline ratio has been in extreme favor of more declining stocks in entire last week. Smallcap index showed very steep selloff which was not seen since many months now. Intraday movements has been quite violent and volatile - not a good sign for uptrend to be intact
A break of upward sloping trendline since March 2009 will happen if prices closes at 19300 which can result into steep selloff and bears can then take on full control of market movements
Please be ready for some crackling moves next week given the increase in volaitlity accompanied by November expiry next week.
When dealing with markets and forecasting the future course of actions we are always evaluating probabilities. Please beware no one can predict market with 100% probability and there is no such sure things as someone might claim.

Sunday, November 14, 2010

Sensex: At Crucial Juncture!

Given the recent fall on 11th and 12th November in Sensex it has now become imperative to analyse the long term structure of the market since the rally started in October 2008
As per Elliott, we know that market moves up in 5 steps and come down in 3 steps. Looking at the wave counts and following the rules it is possible that the entire move up since October 2008 that started from around 7800 might be complete. It is too soon to make that bold statement unless we get some kind of price confirmation below 19900.
RSI is also showing strong negative divergence and turned down just touching 70 level a strong bearish property of RSI. Also breadth has deteriorated significantly in past 2 trading sessions
Sensex moved below 20400 level that was important support looking at intraday charts. A move below 19900 will provide negative confirmation that we are at a larger degree correction
The other plausible outcome is the current down move is only wave ii of wave 5 and we are yet to see further rally to new highs going! Current down move on short term basis is only 3 waves and so if we see rally back above 20950 we are in for new highs
In short, we are currently in no trading zone. Structure of bounce back from here will tell us if major trend has changed. Move down below 19900 will make us bearish and move above 21000 will make a case for new highs on Sensex. Let us be reactive and not predictive and listen to what market wants to tell us in next week. Till then enjoy the Break!

Monday, November 8, 2010

A Perfect Rally in Festive season…

In our previous week's update we mentioned " Correction looks complete with Friday's low and we expect rally to start now…" This is exactly what happened and market started next leg up from the very next trading session i.e. 1st November
Key support level lies at 20400 and we expect Sensex to make new life time high very soon!