Weekly Technical Analysis July 02,2012 - By Vivek Patil, India's foremost expert in Elliot Wave Analysis Top Stories of the Week

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Sensex breaks 200-day EMA after 2-3 weeks reluctance. Rupee posts biggest rally in 3 years on the last day of the week. Prime Minister Manmohan Singh takes over Finance Ministry, calls for animal spirit. Govt raises ceiling for foreign investors in bonds to step the fall in Rupee. Monsoon progress reported to be below normal so far. Moody's maintains India's credit rating at Stable. India Inc. capex growth at 8-year lows during 2011-12. Job market pushed to an 18-month low. S&P says US faces 20% risk of double-dip recession. CRISIL project 14% drop in revenue growth this quarter. Fitch Ratings says Indian economy has entered into stagflation. Oil firms reduce petrol prices by Rs.2.46. India's current a/c gap at 20-year high.

Sensex finally surges above 200-day EMA on the last day of the week, watch 17500-700 Last week we discussed, “The activity during the last two weeks can be roughly enclosed in an upward -slanting parallel channel, which is testing the crucial 200day EMA on the upside … Trading-wise, we may take a ranged approach for the time being, perhaps until the Index is able to decisively break beyond the channel … corrective phases can develop sideways, in an upward-slanting way, and even turn out to be „Irregular‟ in nature … Skilled players would wait for the next trending phase, or concentrate on stock charts which may be trending in the meanwhile … Once 2nd gets over, 3rd would move further higher …” Sensex traded volatile during the first four days of the week. Initially 158 pts higher on Monday morning, it came down 316 pts by Tuesday. However, holding Tuesday‟s low on the next two days, it generated a breakout from the 3-week long range on the last day. While Sensex finally finished 457 pts or 2.7% higher, Power and Metal Indices gained 4-5%. Dollar-based Indices surged over 5%, mostly on the last day, as Rupee shot up on statements by PM an RBI.

and maintain 261. it would seem normal if we see some profit-booking. appears as a breakout from the 2-3 week long sideways / indecisive range of the market. as marked on the charts. The 2nd stage required faster move above the “x” points at 17664 (Nifty 5379). Friday‟s strong action appears to be beginning of the 3rd wave. By moving above the channel. we may watch 17500-700 (Nifty 5310-80) as crucial. time of 1st and 2nd are both in Fibonacci Numbers. maintain Friday‟s gap-up area of 17034-135. As corrective wave 2nd has to consume more time compared to the 1st. Friday‟s showed a high-volume. if any. and a Piercing Line Bull candle for the completed month of „Jun‟12 on the Monthly chart. thus modifying the construction of 2nd wave to a 7-legged Diamond-shaped Diametric. and we‟ll watch for it in the coming week. Structurally. however. Indeed. Though we considered the current rally from 4th Jun low of 15749 (Nifty 4770) as an Impulsive “c” of D. labels have been rearranged to begin the 2nd from 11th Jun. On an immediate basis. After such a surge. However. we considered the sideways action as 2nd wave inside “c” of D. which makes it a credible breakout technically. But we are very close to it. we were set for a 2-stage confirmation of the structure. which also broke above the 200-day EMA. the 1 st stage of confirmation was generated in the 2nd week of rally. which is the area near the Island Reversal of 4th Apr‟12 and the “x” point marked on 3rd Apr. .8% ratio. In the 1st stage. the 1st is shown to be a 5-day affair from 4th Jun to 11th Jun. the bias would remain +ve as long as the dips. is still awaited. and 2nd consumed 13 days from 11th Jun to 28th Jun. we required faster retracement above the channel enclosing “b” of D. Friday‟s volume topped its highest levels after Feb‟12. As per the modified labels. This.The action formed a sizable Bull candle on the Weekly chart. Thus. 100-pt gap-up action.

normal expectation would be a 100% ratio. From Dec‟11. . which would create a 3rd Extension Impulse in the “c” of D. From 4th Jun low of 15749 (Nifty 4770). we assumed larger D leg began from Dec‟11 (wave-count-wise from the 9th Jan‟12). which was a well-channeled Complex Corrective involving two equalsized correctives. developing as a “Flat”. and the same was a well-channeled Double Zigzag.8% to 80% retracement area as crucial for terminating corrective phases. as long as any correction does not close below previous day and remains limited to 1-2 days. Its “a” leg was a channeled Double Zigzag till Feb‟12. This would project 18000-100 to 18700-800 on Sensex and 5450-5500 to 5650-5700 on Nifty. we better watch for the 17500-700 in the coming week for the reasons described. Structurally. anything from 38. and also w. NEoWave Theory considers 80% also as another important retracement level. especially after channeled moves.8%.e. 161. However.t. This is still awaited.r. and the same may be developing as a Flat. Sensex is assumed to be forming “c” of t he Flat. the Intra-day chart shows some deficiencies w. a move above “x”. the 1st stage of confirmation is in place.2% to 261. we are assuming the 14-month fall from Jan‟08 to Mar‟09 as A of a large 7-legged Diametric. faster retracement of the lower-degree 5th inside the 1st.8% time-wise. the impulsive assumption should be assumed as correct. The 1st rally from 4th Jun had retraced the last falling segment inside “b” in faster time.8% retracement level and calls it a “Golden Ratio”. Also. The 3rd can achieve greater lengths than the 1st. and that too. and “b” was a channeled Complex Corrective enclosing 2 Diametric formations. alternation between lower-degree 2nd and 4th inside the 1st. which is still on. “b” corrected “a” by 80% price-wise.8% time-wise. while the Impulsive structure of the 1st of “c” is visible on the Daily chart. i. While the “orthodox” Wave Theory gives importance to 61. in faster time. All this.The 2nd wave inside the Impulsive “c” of D corrected less than 38. It can achieve 100% to 161. It worked this time as well. the end of which was above its starting point. As the chart below depicts. Though “c” of a Flat could achieve Fibonacci proportion with “a” leg. The 2nd stage confirmation would require complete retracement of the 2nd corrective inside “b”. This area is now achieved and broke above. Due to this. since Nov‟10 it has been generally useful to consider 61.t. The 20-month rally from Mar‟09 to Nov‟10 is assumed as its B leg. Since the 2nd wave looks like a “Running” corrective. By crossing the channel.r.8% of the 1st. We i nitially targeted it to achieve 16750-17000 levels.8% ratio or even more is possible. The rally from Dec‟11 to Feb‟12 was labeled as “a” of D. Referring to the larger-degree structure. price-wise and time-wise. and 261. On one higher degree. and by 161.2% of the 1st price-wise. The 1st stage of confirmation that we are indeed into impulsive “c” of D would require upside break of the 15 -week channel drawn around “b”. which carried a pattern implication of about 80%. The 14-month fall from Nov‟10 to Dec‟11 was labeled the C leg of the larger Diametric. which should be the last “Impulsive” wave of a 3-3-5 structure inside the Flat. which justified our assumption of “c” of D upwards. provided we see the described 2nd stage confirmation above “x” point in the coming week or two. we are into the D leg.

On one higher degree. and enclosed a Neutral Triangle (from Nov‟10 to Jun‟11) and Contracting Triangle (from Jul‟11 to Jan‟12). .8% of “a”. wherein by the definition of a Flat. the 1st and 2nd corrective were exactly equal price-wise. This leg was also wellchanneled. and is developing as a “Flat”. We had earlier suspected that the higher degree C leg from Nov‟10 downwards ended on 9th Jan‟12 as a Double combination. these “a” and “b” legs are part of the D leg which commenced from 9 th Jan. “a” is non-impulsive. As we also observed. This discussion was chartically presented on the Weekly chart of Sensex given below. and “b” corrects more than 61. “c” should move higher as an Impulse move. and can break the top of “a” at 18524. both measured almost exactly 3800 Sensex points. Once “b” is over.

While A and B were equal-sized price-wise. .By NEoWave logics. most channeled moves enclose Complex Corrective structures involving “x” waves. we suspected that current rally has potential to be marked as D leg of a much larger Triangle or Diametric from „2008. The long-term Diametric picture was shown on the chart below. C achieved time-equality (14 months) with A. Inside this. The C leg came down from Nov‟2010 to Dec‟2011. the larger A leg was from Jan‟2008 to Mar‟2009. as a channeled fall (Complex Corrective) with two equal standard correctives. Non-impulsive C leg could only be part of a larger Triangle or Diametric. This option was preferable because C leg from Nov‟10 was not an Impulse. The B leg was from Mar‟2009 to Nov‟2010. After breaking the 14-month long channel (from Nov‟10).

D leg of a Triangle can retrace minimum 50%. D could remain smaller than C. D of a Triangle or Diametric can even retrace as much as 80% or more of C leg. and internally developed as a Flat. or ideally 61. One may also note that the D leg during „1996-97 corrected 98% of C. This level matches with the huge gap-up action (refer to Weekly chart discussing 32-week cycle) seen during the „2009. As the past instances would show. and now in „2012 is found holding the „2011 low of 15136. if our assumption of larger formation from „2008 being Triangle or Diametric is true. . wherein “b” had retraced “a” completely. a minimum of 20% cut from the low has been a usual phenomenon. though gradually.8%. So far. We can see both the D legs as marked in Purple squares for the comparison. The 50% level was at 18123. D leg has retraced C by about 57%. However. A 20% magnitude reduced from 15652 would calculate to about 12500 for Sensex. i. “Contracting” portion of the larger Diametric formation. not cross Nov‟10 high of 21109. See the D leg marked during „1996-97 on the chart. Yearly lows Sensex has broken „2010 low of 15652. of the C leg. once the yearly low gets broken.e.By NEoWave logics. The current meandering phase of the market may be because market is forming D leg. which is the middle.

Sensex has now recovered nearly 11% exactly from this level. and is now testing 17300/17500 levels marked on the chart. .The chart given below shows equidistant parallel lines enclosing the development since Nov‟10. it shows how Sensex respe cted most of its important lows as resistances later. Further.

As we already know. Extracting Triangle is a pattern which shows smaller rallies and bigger drops. The Sensex was seen testing the “Neckline” shown on the chart. it shows e < c < a. this B leg ending Feb-Mar‟12 would consume as much as 261. and in the opposite direction. and may therefore be watched. before C leg of the equivalent degree goes down. as shown on the chart below.8% time compared to A. it was suspected that Sensex could be forming an “e” leg of a possible Extracting Triangle. it shows d > b. The upward phase ended during Feb‟12 as per this cycle. Going by the structural possibilities from this cycle. Right Shoulder become bigger that the Left Shoulder. This is an extremely bearish picture. Thus in one direction. alternative to the larger Diametric scenario discussed earlier. which would remain smaller than the “c” leg. The “e” leg did remain smaller as suspected. the 32-week time cycle also matches with the 2-year cycle (already discussed). . Above 18000. wherein C can f all to test even Oct‟2008 lows. as Sensex bounced 9% from the Necklin e. which did prove crucial. On one higher degree. which is correcting the 14 -month long A leg from Jan‟08 to Mar‟09. and end either on 4th Feb‟12 or 31st Mar‟12. Sensex responded by hitting the bottom on 26th Aug. Time-wise. Extracting Triangle (from Mar‟09) would make up the larger B leg from Mar‟09 lows of 8047. This had raised a possibility that an important low was may be formed around 20th Aug. developing as a ranged movement like the Left Shoulder. which may appear rejecting the Head & shoulders or “Extracting Triangle” argument. This also raised the possibility of an upward/sideways phase that could survive for 32 weeks from Aug‟11.32-Week time cycle The development since Mar‟09 has followed a 32-week time cycle. However.

on BSE Small-Cap and MidCap Index. . This is normal not only inside a bear phase. 60% of stocks topped out during „Oct‟10 itself. but is commonly seen even inside a bull phase too. from the high of 21109 to 15425. This played out well as suspected. as was observed. the loss from „2010 high does measure more than 30%. measures around 28% so far. that we would see a topping formation spread over 2-3 month period beginning „Oct‟10. Indeed. However.All major tops are characterized by 30% drop from the top value. The total loss so far. it was argued much earlier. Overall. and many have already shaved off much more than 30%. The 30% taken out from the current top value on Sensex (21109) would be less than 14800. though Sensex itself shaved off only 28%.

the market faced number of sell-offs beginning Oct‟07. This was also an extremely volatile period of nearly two months. just before the market actually topped out. a 2. before reacting lower into a bear phase. .5 month period just before the high of 21206 was hit on Sensex.Comparison with Jan'08 top formation We compared the „2010 topping formation to the movement from Oct‟07 to Jan‟08. One may observe the volatile development once it reached closer to the upper parallel. The Sensex broke above the original channel and achieved an equidistant height at the upper parallel. The following chart of „2008 period shows two equidistant parallel channels. before it finally topped on 8th Jan‟08. Inside this volatility.

as shown below. from where it bounced recently. . Sensex was seen testing the lower Blue parallel.A similarity can be drawn for the „2010 top formation with the developments of „2008.

The next Grid level around 15300 is proving support lately. See how heavy damages occurred almost exactly from the Grid level at 17800. These Grids are shown on the Weekly chart of Sensex below. . One can find a bottom or a top getting formed at each of the Grid levels.2450-point Grid chart for the Sensex Sensex has been following a Grid of 2450-2500 points since „2008.

each time continuing for about 4 (four) years. “long-term” has always meant 4 years in Indian context. Remember. The next two important turning points occurred exactly 8 years thereafter. Sensex rallied 11-fold from 390 (Mar‟88) to 4546 (Apr‟92) in four years. has seen multifold rallies previously. the leading stock of '1992 bull market. considered as the “B” leg. after which it consolidated for 11 years from „1992 to „2003. We explained that the 14-month fall from Jan‟08 was a Triple Combination “A” leg of a large multi-year consolidation. Such a-b-c development since Jan‟08 would be considered part of the 2nd wave of what appears as a probable Terminal beginning „2003. Remember. In „2008. The “Terminal” confirms when the Sensex drops below the 2-4 line of one higher degree. Even though we saw the market reaching levels above Jan‟08 highs. during which Sensex rose 7-fold from 3000 levels to 21000. ACC. The longer time required while rallying is symptomatic of its corrective label of “B”. In our Super-Cycle Degree count. The suspected corrective phase beginning Jan‟08 would be the 2nd wave within the larger 5th wave. remember. The corrective phase beginning Mar‟09 retraced about 99% of the previous fall from 21206 (Jan‟09) to 8867 (Mar‟09). For example. because of which. Both these turning points were marked by stock market scams. looking similar to the consolidation we saw from „1992 to „2003. after which. Our trading/investment strategies should be designed accordingly.Our markets. Terminal development usually violates the 2-4 line. shown on ASA Long-Term chart under a separate paragraph. '1984 was the beginning of 8-year long bull-run till '1992. The rally from 8047 (actually beginning at 8867) was. preferably forming as a Triangle or Diametric. (which was labeled as a Triple Combination). remained below its highs till . the leaders of the rally had extremely difficult time later. it completed another 4-year rally from „2003. This 5th wave is suspected to be forming as a Terminal due to absence of impulsive behavior in its internal 1st wave. It may now consolidate for 7 year. One may see the Yearly chart in Appendix. which shows the 2-4 line and its values for the next three years. therefore. beginning „2008. it usually enters a multi-year consolidation phase. In other words. we‟ve considered „1984 as the beginning point for the most dynamic 3rd wave. the multi-year consolidation is expected to shape up like a large decade-long Diametric. in '1992 and '2000. The Sensex is assumed to be under the influence of a large 8-year cycle ever since its birth. As shown on the chart below. The next leg downwards would be labeled as “C”.

Break of this long-term channel also weighed in favor of a larger corrective phase following this 8-year cycle. During „2008. In the next cycle top. beginning Sep'1994 got over in Oct'2005 at 7656. We had. which were leaders of '2000 rally. As I had shown. which was used earlier to project 20000 level for the Sensex during „2007. In the previous 8-year cycle top during „1992. targeted sub-10k levels for Sensex price-wise during „2008-09. I consider two alternatives : The first one assumes that a large Triple Combination corrective. accordingly. such a projection also gave 20000 as the “minimum” target. the IT stocks. Sensex lost 57% from 4546 to 1980. lost as much as 90% of their top valuations by the year '2003.end of '2004. Appendix : Long-term scenarios for Sensex As for the larger-degree wave-scenarios. The last corrective within this Complex Corrective phase formed as a "Non-Limiting" Running Triangle. This forecast was achieved. This scenario also combines well with the traditional channeling technique. was broken when the Index moved below 17200. The yearly channel. threw up similar possibilities. the cut was almost 58% from 6150 in „2000 to 2594 in „2001. This scenario is shown on the chart given below : . Sensex followed a parallel channel for 11 long years from Apr'1992 to May'2003. This has been my preferred scenario for many years. which I had assumed to be under development since I began long-term forecasting during „1997-„1999. Similarly. This one was the basis of “Forecast for the 21st Century” article published in Business Standard (which can be read on vivekpatil. The price-time targets were achieved as Sensex dropped 63% from 21206 to 7697. if one projects the width of this channel on upper side. and a minimum of 13 months into bear phase. shown below. which therefore. time-wise.com). we were sitting on this very important cycle.

and the same is likely to develop as a ”Terminal”.As per my second alternative. a Super-Cycle-Degree 3rd (or 5th) began since Nov‟84.8% of 3rd. Its internal 3rd was an “extended” leg. and 261. which achieved exactly 261. Since the 5th is now more than 61. it may lead to a "Double Extension" scenario.8% of 1st value-wise. The Sensex is now forming its 5th Wave. 2nd was exactly 61.8% time-wise. The 4th was 38. Within the non-directional legs. because its lower -degree 1st wave since May‟03 developed as a Diametric (a “corrective” structure rather than an “impulse”).8% time-wise. This scenario is shown on the the chart given below : . as shown below.2% of 3rd value-wise.8% ratio to the 1st on log scale. and 161. wherein both 3rd as well as 5th would be extended waves.

marked as a-b-c-d-e-f-g. It is called "Diametric" because it combines two Triangular patterns. both showing about 115% gain. The contraction point is the "d" leg. "g" was equal to "a". one initially “Contracting” up to the "d" leg. "c" and "e" were equal in "log scale". both showing about 60% gains. followed by an “Expanding” one.Development from May‟03 is a 7-legged Diametric formation. Similarly. and the legs on either sides of it tend to be equal. . Accordingly.

we are into its 2nd wave. Sensex could be projected to achieve even 50000+. would then change to 3rd and 4th respectively. The SuperCycle-Degree marking for 1st and 3rd shown. Since „2008. The wave-count presented on ASA Long-term Index favors the alternate wave-scenario discussed above. restrict the upsides to much lower levels than 50K. The Diametric development from 2003 to 2008 has been considered as the 1st of the 5 th. The "Double Extension" scenario was also shown on following ASA Long-term Index (chart below).E Index ('1969 to '1980) and Sensex (thereafter till date). Due to the corrective structure in the 1st leg. If the 5th proves to be a Terminal. which could continue to develop over 8 years from „2008. If a "Double Extension" unfolds. as shown in White. larger 5th could be developing as a Terminal. because only a 5th of the 5th can be a Terminal. one larger-degree label of 3rd will have to change to 5th. I've created this chart combining Index compiled by a British advisor (from '1938 to '1945). RBI Index ('1945 to '1969). but end surely above 21000. F. The labels show that the market is into the lower-degree 5th of the SC-degree 3rd or 5th wave. . A break of 2-4 line would confirm the Terminal development inside the 5th.. and would therefore.

While due care has been taken in preparing these notes/comments. no responsibility can be or is assumed for any consequences resulting out of acting on them. .Disclaimer : These notes/comments have been prepared solely to educate those who are interested in the useful application of Technical Analysis.

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