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!!!
Training Workshop in Mumbai
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!!!
For more details on Training on Neo wave – Advanced Elliott wave and combining it with Hurst Time cycles Contact Us at helpdesk@wavesstrategy.com or call us on +91 22 28831358 / +91 9920422202
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