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!

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!!!

Nearing the Top AGAIN!

Sensex

Cycle analysis indicates a top is near. Please beware Cycle analysis does not gurantee a down move but only price confirmation does. It does provide time sensitivity to the analysis. Timing the market is becoming increasingly important given the sideways direction and TIME is the most difficult parameter to predict. Cycle analysis does provide some highlight on TIME

William %R as shown is providing a very good indication of Trending or a Trading range market

Past 6-7 months William %R shows Trading range market

A movement tween -60 and -90 will indicate a strong downward trending market

Wait for 17100 levels to be taken out. A further negative confirmation of bigger move down will be obtained below 16500!

BEARS TRAPPED YET AGAIN! But Negative Divergence with Rupee and falling weekly momentum continues!!!

Sensex Weekly Momentum

INR - Sensex Divergence

We were expecting Sensex to pause near 76.4% retracement levels i.e. around 17500 but the rally continued

This is for the 3rd time that Bears have been trapped on the wrong side of the trend. This exactly explains why MONEY and RISK management are equally important along with Technical / Fundamental analysis

Avoid Stop loss and the EMOTIONAL IMBALANCE will be much more than the FINANCIAL IMBALANCE

Please beware the future direction of the Markets are only probabilistic and it can become increasingly difficult to predict when Mr. Market is not moving in any clear trend

Still good amount of money could have been made in the down move in MAY as Sensex moved exactly as we were anticipating only to give away a part of profit in the current rally as it should have triggered your stop loss levels a week before, thereby locking reasonable amount of net profit

Sensex is almost at the previous top around 18000 now

This warrants us to adopt the alternative scenario we mentioned earlier that wave 5 is still in progress

There are couple of ways in which the sub-divisions of ongoing wave 5 can be labeled, one of acceptable wave count is as shown

The reason for me to still believe that the intermediate top is near is the weekly RSI divergence and divergence of Sensex with INR

Sensex is near the previous top but USDINR has still retraced only 61.8% of its gain from the bottom of 44.30. This along with waning weekly momentum suggests we are in wave 5 and top should be in place soon if not yet!

A move below 17100 levels will provide negative confirmation. Wait for that level to be taken out and this time it will probably be the BULLS that will run for cover!!!

Caution: Please do not try to pick up a top, It cannot be predicted even after month long divergences unless it has occurred.

Corrective wave continues further upwards!

Sensex

Given the recent strength in Senex expect wave 2/B to continue further up taking prices near 76.4% retracement levels of 17500

Also previous 4th wave resistance lies at 17400 level

Wave c = wave a at 17450 levels

All these give a potential resistance zone as 17400 - 17500 from where prices should turn lower

Time Cycles also suggest rally to continue for couple of days before we turn down in a major move

It can be dangerous to trade this corrective wave upward as it can develop into a complex pattern without much potential for upside

Wait for prices to take out lows of wave b before initiating a short position!