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!!!

Bullish view on Nifty and The Banking Sector!

Nifty 15 mins

We have been mentioning the importance of 5950 levels since past few days now. Nifty action in last 2 days again proved the importance of this level. On December 16^th Nifty made a high of 5956 and closed the shorter trading week at 5942. Nifty broke out of downward corrective channel (shown in red) in second half of last trading day of the week and moved up impulsively.

On very short term basis we do not rule out the pull back till 5920 – 5925 levels before Nifty finally break above 5950 impulsively. We think Nifty is now in a (i)-(ii), i-ii mode and should now show a 3^rd wave rally up which will be very steep. We might be early in making such markings before price confirmation but the 3^rd wave rally will not give us the opportunity to show it before it happens and it will take not more than couple of days for steep rally. The rally in last 2 days in stocks like Infosys, TCS, Tatamotors, etc is perfect example of how 3rd wave rally works. We would rather be early than to miss the best of the rally that looks probable now.

We remain strongly bullish on Nifty now as long as 5850 level is intact. Any move below this level will make us negative since the entire move up will then be only 3 wave but this looks to be low probable scenario as of now. A move above 6000 will strongly confirm our bullish view on Nifty.

Bank Nifty

Bank Nifty 60 mins

The Banking sector has been falling for quite sometime. We thought of revisiting this index and the vital Banking stocks to understand the overall trend of this interest sensitive sector. We have analyzed the Bank index and key stocks like SBI, ICICI, PNB and IDBI banks to understand if we are in for further fall or we can expect an impulsive move up with very appealing Risk Reward ratio.

Looking at the long term Daily chart above, we can see that we have probably completed wave (iv) of 3 with strong support of the lower trendline of blue channel. This makes the case that the multi-weeks correction shall be over in this sector for now. Also we can see alternative guideline as mentioned in Elliott wave principle. The 2^nd wave and 4^th wave correction alternates between Flat and Zig-Zag correction respectively.

Analyzing the short term chart on 60 mins, we can see prices have been moving within the bigger blue corrective channel. Prices broke out of the downward sloping red channel and took support on the upper trendline of the channel as seen on the chart. An upside break of 11650 level will provide first minor positive confirmation that we might probably have bottomed out on Banking index and sector as a whole with favorable wave counts as shown above. Crucial support level now lies at 11200 and a break here would lead to steep selloff across the sector.

Banking Stocks

Banking Stocks 120 mins

Banking stocks at a Glance: SBI, ICICI, PNB, IDBI

Daily Chart: From the glance of the daily charts of the Banking stocks we can easily make out that each of these stocks are lying very close the long term support upward sloping trendline from March 2009. We have shown the crucial levels on the charts for SBI, ICICI, PNB and IDBI stocks and the long term Elliott wave counting. It is sometime imperative for us to evaluate the long term chart patterns in order to give us the direction of the short term trends. Banking stocks as a whole have been the weakest sector after real estate in past couple of weeks. The move down on SBI and ICICI Bank looked impulsive whereas appeared corrective on PNB and IDBI bank. Looking at the long term chart we think the entire move down even on SBI and ICICI should only be a 3 wave structure since we still have upward wave 5 pending.

SBI and PNB have been moving excellently within the channel formed and the wave counts are very clear. On long term basis we expect prices to bottom out soon on the banking stocks and start next leg up. This view point is valid as long as prices do not break the lower trendline of the channel shown on all the charts and remain above the crucial levels marked on the charts. Also all the stocks lie very close to 200 days Moving average just below the trendline support levels.

On short term basis as shown on 120 mins charts we have shown the crucial support and resistance levels. A break of these levels on either of the charts will indicate a strong trend to unfold in that direction. As we said long term charts provide direction for short term trends we are positively biased now on the Banking stocks as a whole with very appealing Risk Reward ratio. The Risk of taking a long position is very less as compared to the Reward that we can expect.

From 120 mins chart we can observe that PNB is “relatively” the strongest among the batch of 4 stocks where PNB made a higher low when all other stocks were making lower lows. Also PNB tend to bounce back more than the other stocks on upside after a down move. Followed by PNB, IDBI is the next relatively better stock. Both of these stock lie close to their 50 period Moving averages whereas both ICICI Bank and SBI are far away from their 50 period MA. IDBI also has given an upside breakout of the downward sloping trendline and PNB lying close to its downward sloping line.

SBI is the weakest among the sector but is showing a very strong positive divergence on 120 mins chart. This does not consider it to be ideal candidate for initiating a long position but just indicating that this sector as a whole is bottoming out.

To conclude: The Banking sector as a whole is down but should be bottoming out near current levels. A break of crucial levels shown on Daily and 120 mins chart will result into multi weeks fall but that looks to be lower probability scenario now. We are bullish as long as these levels are maintained and the current structure offers the best Risk Reward ratio in favor of an upmove. We do not rule out the possibility that the down move in banking sector is just wave 3 of bigger correction but this looks low probability scenario and if we are correct on upside the Reward will largely overwhelm the Risk present currently.