Sensex / NSE Midcap - Higher degree & Multi month correction, Time cycles still intact!

Sensex

The ongoing correction is Sensex is of higher degree than everyone might be anticipating

We get a confirmation of this when we look at the Midcap chart shown below. It confirms a correction of entire rally from March 2009 bottom has started

3.25 Time Cycles have been pretty accurate in predicting the turn and even wave B rally took place near the Time cycle. The next bottom should be made near second week of March so we still have long way to go on downside before any significant rally can happen

We know from our past analysis that 23.6% has very significant role to play in Indian markets and stocks and so we would provide some respect to that level in this downfall as well. The 23.6% retracement of the entire move up from October 2008 in Sensex till November 2011 comes near 17900 levels. This level should provide some short term support

The wave count indicates we are either in wave C or wave 3 of primary wave 2. Wave 2 generally retraces 61.8 % of entire wave 1 but let us take one step at a time before forecasting that far. The current wave looks to be in wave iii of 3 and any support should be short lived

Any move above 19400 levels will make the entire downward correction quite complex but we would stick with current bearish wave counts as long as prices are behaving exactly how we have been anticipating

We mentioned in previous blog as well that "capitulation might happen anytime next week" and that is what is happening in Indian markets

We will continue to see surprises on downside and will not be surprised on increased intraday volatility and further steep downfall with short term supports just not working for Indian markets.

The general psychology is that markets have fallen heavily last week and so there will be buying now and traders initiate long positions but that is extremely dangerous strategy. There is no definition of a significant fall. A fall of 5% looks very significant but only to look minuscule in front of a fall of 25 %. DLF has fallen 7% on Thursday but only to fall more 7% on Friday. This is what happens when strong trends are going on in that direction. So please refrain yourself from using the word significant as it is more relative than an absolute adjective!

In short, we might see some support coming in at 17900 levels on Sensex but that can be short lived if we are indeed in 3rd of 3rd violent wave! Any significant bounce from there will be good to observe but for now lets not come in the way of the bigger trend!

NSE Midcap Index

Movement in this index represents the speculative activities and the animal spirit of the traders and speculators. It is seen that the ongoing correction is bigger than any other correction that happened during the period from March 2009 bottom.

We can see on daily chart that prices have moved down impulsively below the upward sloping trend channel and are now moving steeply lower. This just indicates that speculative activities are slowing and the worse hit stocks will be the small cap and the mid cap stocks.

RSI has also failed to show any significant bounce back and stayed below 50 lately. We are convinced that this is a higher degree correction in form of wave 2 that can retrace anywhere between 38.2% to 61.8% of the entire move up from 3000 to 9800.

Our first target is the area of previous 4th wave that comes in at 7250 and this also mark the zone for 38.2% retracement level. We do not expect any significant bounce back now before this level is achieved.

Good Volatility and Intraday movements!!

Nifty

As shown on 30 mins chart we now expect some steep downfall in form of wave iii of (iii). As we know 3 of 3 are the most violent waves and is the most emotionally painful wave if you are placed on the opposite side. The reaction time is very less and traders do not know how to react during such situations. We do not rule out the possibility of this current correction developing in the form of an expanded flat as shown on alternate count which should be followed by a C wave rally above 5850. But we will keep this as an alternate scenario as long as prices are below 5800 levels. Even if we are wrong on the start of 3^rd of 3^rd our readers are aware of the situation and are mentally prepared for such a scenario which might be a shock / surprise for many other traders.

In short, we expect Nifty to continue the downfall atleast till 5400 levels before any significant bounce back. This scenario remains valid as long as 5800 is not taken out on upside, which will make our alternate count as preferred one. Till then enjoy the volatility and the capitulation that might happen anytime next week!

Change of events!!!

Nifty

We were expecting a minor wave up on Nifty but it looks Nifty has taken a V turn in last 2 days without giving prior warning. As mentioned before that break of 6060 will force us to re-evaluate the wave counts. As seen on 120 mins chart, we have shown both the counts on the chart in Red and Blue. Blue is the count we previously marked on the chart and Red is the alternate count. As per the red counting we have completed 3 wave up in form of wave B and a C wave which will take out previous low near 5700 is in progress. This is very bearish count and we would like to give equal weights to both the scenarios at this point and time.

We remain cognizant of the fact that the late weakness in Banking, Real Estate and Capital Goods sector will weigh on Indian markets and further downfall is plausible. We would still like to wait for further confirmation which will be obtained by movement below 5990. The upward rally does not exhibit a clear 5 wave structure but we would still give it benefit of doubt as long as prices stay above 5990.

RSI has also deteriorated considerably and we can see that Nifty has touched 76.4% retracement level to the point and reversed. 76.4% level is very important in Indian Markets and failure of Nifty to cross above this, raises the odds that upward rally is just wave B of a bigger A-B-C correction down.

Key support level to now watch lies at 5990 and on movement below that we will adopt the alternate scenario as preferred.

Sensex to continue the short term uptrend saga in New Year 2011 !!!

Sensex

Wishing you all a very Happy & Prosperous 2011 !!!

Sensex looks to have bottomed out near 19100 levels in the form of 3 wave complex correction and started the next leg up

3.25 Time Cycles have been pretty accurate in predicting the turn and Sensex bottomed out very near to the Time Cycle

As we have shown previously, Banking sector also has given an upside breakout lately and should form a new high along with major Index

Stocks like SBI, LnT, Siemens, IDBI, Tatamotors, ICICI Bank, etc which have been laggards since past few days/weeks have given an upside breakout in 2nd half of last week. Heavy weights like this moving up together should take Sensex to all time high before a major correction sets in

Wave counts suggest that we are in minute wave iii of wave [v] and this iiird wave should reach atleast 21000. Looking at wave [iv] degree it looks unusually large compared to wave [ii] and so we are open to the possibility that we have just completed wave 2 of 5 and there are many legs up yet to go. This is very bullish scenario but lets keep this as alternative for now till we get further confirmation from price structure. The degrees of waves might be confusing so in short both scenarios are bullish in short term and suggest new life time highs on Sensex

We will have to re-evaluate the wave structure if 19550 level is taken out on downside that will suggests a more complex correction is underway. Till then enjoy the ride as long as it lasts!!!