Trend up still intact! But Risk Management crucial…

Sensex

Sensex continues to behave in a predictable fashion. We mentioned couple of weeks back itself that we expect Sensex to rally atleast till 20,000 levels!

Last week we said "A close observation of internal wave structure on smaller time frame suggests that a minuttee 3rd wave rally might be near an end we shall see short term consolidation. Market breadth was not that promising for a day or 2 in between suggesting we might soon consolidate and enter into wave v of [iii]" This is perfectly how market moved in form of minuttee 4th wave and starting 5th wave of [iii]

There are no signs of exhaustion as yet and we still continue to ride the trend upwards.

A move down below 19770 could suggest we are in wave [iv] and can expect some retracement of current steep movement up

At current levels current wave [iii] is approximately equal to wave [i] and we do not rule out the possibility of wave [iii] reaching till 20600 to 21000 - 1.236 / 1.382 * Wave [i] as long as 19700 level is intact!

Caution: When trend changes, a steep correction cannot be ruled out given the steepness in rise and so a strict Risk Management, Position sizing and use of stop losses is extremely important. Complacency can take over even the best of the traders during such times and we shall pinch ourselves from time to time to be awake and not loose our foresightedness...

Strong rally continues!

Sensex

We mentioned in our previous blog that "We expect wave [iii] to last atleast till 20,000 levels. Market should give us a hint if it wants to take some other path. Enjoy the rally as long as it continues!"

Sensex continued the rally last week as well and closed exactly at 76.4% length of wave [i]

A close observation of internal wave structure on smaller time frame suggests that a minuttee 3rd wave rally might be near an end we shall see short term consolidation. Market breadth was not that promising for a day or 2 in between suggesting we might soon consolidate and enter into wave v of [iii]

It is very tricky to count the internal waves in such a strong rally and prediction of precise turning points is a challenge

So lets continue to be in the trend but taking out partial profits and following the rule of trailing stop loss!

Range of 19250 - 19300 should be acting as a support over very short term and 20000 as strong psychological resistance!

A perfect wave [iii] RALLY! As Anticipated!

Sensex

Explanation:

We mentioned in our previous blog that "This scenario calls for some substantial up movement to come in next week in form of wave [iii] of 5"

This is exactly how prices moved up in form of wave [iii] of final wave 5

The movement on Sensex have been quite smooth with no selling pressure yet. The momentum so far has been strong.

We do not want to call for a correection in this strong moving market but ride the trend till it proves to be terminating either by price confirmation or give some indication in momentum divergence.

Sensex rally of past few days has set in a perfect example of how strong wave iii movements can be and very much rewarding if predicted early. Many of the call option writers are in big trouble now as we have been stating in our previous writeups that writing options is not such a good strategy when vol is so low

We expect wave [iii] to last atleast till 20,000 levels. Market should give us a hint if it wants to take some other path. Enjoy the rally as long as it continues!

Final leg up Not Yet Complete!

Sensex

Sensex broke down out of wedge as predicted but we were expecting prices to reach atleast start of the wedge near 17400 levels but prices moved down only in 3 wave structure indicating the intermediate trend is still "UP"

Prices made a low near 17820 and turned back up during mid week, a 23.6% retracement level of the rally from 16000 again proves importance of this Fibo level in Indian markets. Failure of price to retrace even 38.2% suggests that the final wave 5 of the entire rally since October 2008 is still ongoing and we probably completed only wave [i] of wave 5.

This scenario calls for some substantial up movement to come in next week in form of wave [iii] of 5

It will be interesting to see how prices move next week and whether up move is met with additional selling pressure or is it a smooth journey.

Advance decline ratio also improved substantially in second half of the week

Expect some good movement on UPSIDE in coming week and move above 18450 will provide further positive confirmation!

Prices breakdown from Diagonal Triangle (Wedge) after Throwover AS EXPECTED!

Sensex

As we have been mentioning in previous updates that the throwover looks complete and price shall reverse below 18500, Sensex made a high 18475 and reversed the direction

Even before wave (iii) of v started developing I mentioned in previous blogs that ending diagonal is the likely pattern that should develop looking at the weak momentum and that is exactly what has happened. It is amazing to see when you are measuring the pulse of Mr. Market and understanding the rhythmic movements it is conveying. But please beware we should also be prepared for surprises and alternatives!

Sensex broke below the lower trendline of the wedge on 27th August giving away as much as 250 points from day's high.

The red direction line was shown on the chart after 17th August move and Sensex is catching up with it even now

We expect a move atleast till 17400 level i.e. the start of the diagonal triangle. A bounce from there will tell us if we have completed the major move 5 or just a minor i of primary 5

The sectors that were taking Sensex higher in past few weeks were Banking, Auto and Real Estate which also gave away key support levels on Friday's fall

The market movers like Reliance, Infosys, Tatasteel, Hindalco were already laggards in complete rally of wave v and Friday's down move added key levels breakdown for DLF, Icicibank, Tatamotors. A clear breakdown in smallcap index also added the fact that selloff was across the board

The number of declining stocks on BSE were more than 2000 in past 2 days which is not seen for atleast 3 months now

For intermarket analysts, movements on Sensex has been a great mystery as the fall came on the day when majority of global indices were in green which actually is a surprise since Sensex was exhibiting the tendency since past few months of moving sideways or only drifting (not falling significantly) lower when global markets fall and rallying as soon as get an opportunity to do so.

To summaries: Expect further fall in Sensex atleast till 17400 levels before a significant up correction ensues and nature of correction will convey the further path. A movement back above 18350-18400 level will force us to evaluate alternative scenario