Weekly Technical Analysi 2 July 2012

7/30/2019 Weekly Technical Analysi 2 July 2012

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Weekly Technical Analysis

July 02,2012

By Vivek Patil, India's foremost expert in Elliot Wave Analysis

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.

op Stories of the Week

ensex finally surges above 200-day EMA on the last day of the week, watch 17500-700

ast 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 20ay 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 beyondhannel corrective phases can develop sideways, in an upward-slanting way, and even turn out to be Irregular in nature Skilled players would wait foext trending phase, or concentrate on stock charts which may be trending in the meanwhile Once 2

ndgets over, 3

rdwould move further higher

ensex 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, holuesdays 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% higower 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.


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he action formed a sizable Bull candle on the Weekly chart, and a Piercing Line Bull candle for the completed month of Jun12 on the Monthly chart.

ridays showed a high-volume, 100-pt gap-up action, appears as a breakout from the 2-3 week long sideways / indecisive range of the market, whiso broke above the 200-day EMA.

deed, Fridays volume topped its highest levels after Feb12, which makes it a credible breakout technically.

fter such a surge, it would seem normal if we see some profit-booking. However, the bias would remain +ve as long as the dips, if any, maintain Fridaysap-up area of 17034-135.

tructurally, we considered the sideways action as 2nd

wave inside c of D. Fridays strong action appears to be beginning of the 3rd

wave, as markee charts.

s corrective wave 2nd

has to consume more time compared to the 1st, labels have been rearranged to begin the 2

ndfrom 11

thJun, thus modifying the

onstruction of 2nd

wave to a 7-legged Diamond-shaped Diametric.

s per the modified labels, the 1st

is shown to be a 5-day affair from 4th

Jun to 11th

Jun, and 2nd

consumed 13 days from 11th

Jun to 28th

Jun. Thus, time of 1st

ndare both in Fibonacci Numbers, and maintain 261.8% ratio.

n an immediate basis, we may watch 17500-700 (Nifty 5310-80) as crucial, which is the area near the Island Reversal of 4 thApr12 and the x poinmarked on 3

rdApr.

hough we considered the current rally from 4th

Jun low of 15749 (Nifty 4770) as an Impulsive c of D, we were set for a 2-stage confirmation of the structure

the 1st

stage, we required faster retracement above the channel enclosing b of D. By moving above the channel, the 1st

stage of confirmation waenerated in the 2

ndweek of rally.

he 2nd

stage required faster move above the x points at 17664 (Nifty 5379). This, however, is still awaited. But we are very closeto it, and well wor it in the coming week.


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he 2nd

wave inside the Impulsive c of D corrected less than 38.2% of the 1st

price-wise, and 261.8% time-wise.

he 3rd

can achieve greater lengths than the 1st. It can achieve 100% to 161.8% of the 1

st. This would project 18000-100 to 18700-800 on Sensex and

450-5500 to 5650-5700 on Nifty.

ince the 2nd

wave looks like a Running corrective, the end of which was above its starting point, 161.8% ratio or even more is possible, which would create xtension Impulse in the c of D.

ll this, provided we see the described 2ndstage confirmation above x point in the coming week or two.

tructurally, while the Impulsive structure of the 1stof c is visible on the Daily chart, the Intra-day chart shows some deficiencies w.r.t. alternation betwe

ower-degree 2nd

and 4th

inside the 1st,

and also w.r.t. faster retracement of the lower-degree 5th

inside the 1st.

ue to this, we better watch for the 17500-700 in the coming week for the reasons described. However, as long as any correction does not close belowrevious day and remains limited to 1-2 days, the impulsive assumption should be assumed as correct.

n one higher degree, we assumed larger D leg began from Dec11 (wave-count-wise from the 9thJan12), and the same may be developing as a Flat. Its a

as a channeled Double Zigzag till Feb12, and b was a channeled Complex Corrective enclosing 2 Diametric formations.

lso, b corrected a by 80% price-wise, and by 161.8% time-wise. From 4thJun low of 15749 (Nifty 4770), Sensex is assumed to be forming c of the Flat, w

hould be the last Impulsive wave of a 3-3-5 structure inside the Flat.

he 1st

rally from 4thJun had retraced the last falling segment inside b in faster time, which justified our assumption of c of D upwards. We initially targeted

chieve 16750-17000 levels. This area is now achieved and broke above.

hough c of a Flat could achieve Fibonacci proportion with a leg, anything from 38.2% to 261.8%, price-wise and t im e-wise, normal expectat iono uld be a 100% ratio.

he 1ststage of confirmation that we are indeed into impulsive c of D would require upside break of the 15-week channel drawn around b. By cross ing the

hann el, the 1ststage of conf i rmat ion is in place.

he 2nd

stage conf irmat ion wou ld require complete retracement of the 2ndcorrective inside b, i.e. a move above x, and that too, in faster time. T

t i l l awaited.

eferring to the larger-degree structure, we are assuming the 14-month fall from Jan08 toMar09 as A of a large 7-legged Diametric. The 20-mo nth raom Mar09 to Nov10 is assumed as its B leg.

he 14-month fall from Nov10 to Dec11 was labeled the C legof the larger Diametric, which was a well-channeled Complex Corrective involving two equzed correctives.

rom Dec11, we are into the D leg, which is still on, developing as a Flat.The rally from Dec11 to Feb12 was labeled as a of D, and the same w

ell-channeled Double Zigzag, which carr ied a pattern impl icat ion of about 80%.

While the orthodox Wave Theory gives importance to 61.8% retracement level and calls it a Golden Ratio, NEoWave Theory considers 80% also as anompo rtant retracement level, especial ly after channeled m oves.

s the chart below depicts, since Nov10 it has been generally useful to consider 61.8% to 80% retracement area as crucial for terminating correctivehases. It wo rked this t ime as wel l .


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n one higher degree, these a and b legs are part of the D leg which commenced from 9th

Jan, and is developing as a Flat, wherein by the definition of a a is non-impulsive, and b corrects more than 61.8% of a.

nce b is over, c should move higher as an Impulse move, and can break the top of a at 18524.

We had earlier suspected that the higher degree C leg from Nov10 downwards ended on 9thJan12 as a Double combination. This leg was also well-

hanneled, and enclosed a Neutral Triangle (from Nov10 to Jun11) and Contracting Triangle (from Jul11 to Jan12).

s we also observed, the 1stand 2

ndcorrect ive were exact ly equal pr ice-wise, both measured almost exact ly 3800 Sensex points. This discussion was

hartically presented on the Weekly chart of Sensex given below.


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y NEoWavelogics, most channeled moves enclose Complex Corrective structures involving x waves.

fter breaking the 14-month long channel (from Nov10), we suspected thatcurrent ral ly has potent ia l to be marked as D leg of a m uch larger Triangle oiametr ic from 2008. This option was preferable because C leg from Nov10 was not an Impulse. Non-impulsive C leg could only be part of a larger Trir Diametric.

nside this, the larger A leg was from Jan2008 to Mar2009. The B leg was from Mar2009 to Nov2010. The C leg came down from Nov2010 to Dec2s a channeled fall (Complex Corrective) with two equal standard correctives.

While A and B were equal-s ized price-wise, C achieved t ime-equali ty (14 months) w ith A. The long-term Diametric picture was shown on the chart below


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y NEoWave logics, D leg of a Triangle can retrace minim um 50%, or ideally 61.8%, of the C leg. The 50% level was at 18123. So far, D leg has retracey about 57%.

of a Triangle or Diametric can even retrace as much as 80% or more of C leg. However, if our assumption of larger formation from 2008 being Triangle oriametric is true, D could remain smaller than C, i.e. not cross Nov10 high of 21109. See the D leg marked during 1996-97 on the chart.

ne may also note thatthe D leg during 1996-97 corrected 98% of C, and internally developed as a Flat, wherein b had retraced a completely.

We can see both the D legs as marked in Purple squares for the comparison. The current meandering phase of the m arket may be because market orming D leg, which is the middle, Contracting portion of the larger Diametric formation.

early low s

ensex has broken 2010 low of 15652, and now in 2012 is found holding the 2011 low of 15136.

s the past instances would show, once the yearly low gets broken, a minimum of 20% cut from the low has been a usual phenomeno n, though

radual ly . A 20% magnitude reduced from 15652 would calculate to about 12500 for Sensex.

his level matches with the hu ge gap-up act ion (refer to Weekly chart discussing 32-week cycle) seen during the 2009.


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he chart given below shows equidistant parallel lines enclosing the development since Nov10. Further, it shows how Sensex respected most of impo rtant lows as resistances later.

ensex has now recovered nearly 11% exactly from this level, and is now testing 17300/17500 levels marked on the chart.


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2-Week time cyc le

he development since Mar09 has followed a 32-week t ime cycle, as shown on the chart below.

his had raised a possib i l i ty that an impo rtant low was m ay be formed around 20thAug. Sensex respond ed by hit t ing the bottom on 26

thAug.

his also raised the possibility of an upward/sideways phase that could survive for 32 weeks from Aug11, andend either on 4thFeb12 or 31

stMar

eveloping as a ranged movement like the Left Shoulder. The upward phase ended during Feb12 as per this cycle.

oing by the structural possibilities from this cycle, i t was suspected that Sensex could b e forming an e leg of a possible Extracting Triangle, which wemain smaller than the c leg. The e leg did remain smaller as suspected.

s we already know, Extract ing Triangle is a pattern which show s sm al ler ral l ies and bigger drop s. Thus in one direction, it shows e < c < a, and in thepposite direction, it shows d > b.

n one higher degree, Extracting Triangle (from Mar09) would make up the larger B leg from Mar09 lows of 8047, which is correcting the 14 -month leg from Jan08 to Mar09.

ime-wise, this B leg ending Feb-Mar12 would consume as much as 261.8% time compared to A, before C leg of the equivalent degree goes down.

his is an extremely bearish picture, alternative to the larger Diametric scenario discussed earlier, wherein C can fall to test even Oct2008 lows.

bove 18000, Right Shoulder become bigger that the Left Shoulder, which may appear rejecting the Head & shoulders or Extracting Trianglergument. However, the 32-week t ime cy cle also matches w ith the 2-year cycle (already d iscussed), and may therefore be w atched.

he Sensex was seen testing the Neckline shown on the chart, which did prove crucial, as Sensex bounced 9% from the Neckline.


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l l major top s are character ized by 30% drop from the top value. This is n ormal no t only in side a bear phase, but is common ly seen even inside a b

hase too . The 30% taken out from the curren t top value on Sens ex (21109) wo uld be less th an 14800.

he total loss s o far, from th e high of 21109 to 15425, measu res around 28% so far. However, on BSE Small-Cap and MidCap Index, the loss from 2igh do es measure more than 30%.

veral l, i t was argued m uch earl ier , that we wou ld see a topping form at ion spread over 2-3 month period beginning Oct10. This played out well asuspected. Indeed, as was observed, 60% of stocks topped out during Oct10 itself, and many have already shaved off much more than 30%, thouensex itsel f shaved off on ly 28%.


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omparison with Jan'08 top formation

We compared the 2010 topping formation to the movement from Oct07 to Jan08, a 2.5 month periodju s t before th e h ig h of 21206 was hi t on Sensehis was also an extremely volat i le per iodof nearly two months, just before the market actually topped out.

he followingchart of 2008 period shows two equidistant paral lel channels. The Sensex broke above the orig in al channel and achieved an equidiste ight at the up per paral lel , before react ing low er into a bear phase.

ne may observe the volatile development once it reached closer to the upper parallel. Inside this volatility, the market faced number of sell-offs beginning Ocefore it finally topped on 8

thJan08.


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similarity can be drawn for the 2010 top formation with the developments of 2008, as shown below.

ensex was seen test ing the lower B lue paral le l , from wh ere it bounced recent ly.


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450-point Grid chart for the Sensex

ensex has been fol lowing a Grid of 2450-2500 points since 2008. These Grids are shown on the Weekly chart of Sensex below. One can find a bottom oop getting formed at each of the Grid levels.

ee how heavy damages occu rred almost exact ly from the Grid level at 17800. The next Grid level around 15300 is proving suppo rt late ly.


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ur markets, remember, has seen mult i fo ld ral l ies previou sly, each t im e cont inuing for about 4 (four) years, after wh ich, i t usual ly enters a m ult i -yeaonso l idat ion phase. In other words, long-term has always meant 4 years in Indian context.

emember, Sensex rallied11-fold from 390 (Mar88) to 4546 (Apr92) in four years, after which itconsolidated for 11 years from 1992 to 2003.

n 2008, it completed another 4-year rally from 2003, during which Sensexrose 7-fold from 3000 levels to 21000. It may no w co nsoli date for 7 yeareginning 2008, preferably forming as a Triangle or Diametric.

We explained th at the 14-month fall from Jan08 was a Triple Combination A leg of a large multi-year cons ol idat ion. The correct ive phase beginniMar09 retraced about 99% of the previous fallfrom 21206 (Jan09) to 8867 (Mar09), (which was labeled as a Triple Combination). The longer t ime requiwhile rallying is symptomatic of its corrective label of B.

he rally from 8047 (actually beginning at 8867) was, therefore, considered as the B leg. The next leg downwards would be labeled as C.Such aevelopment since Jan08 would be considered part of the 2

ndwave of w hat appears as a probable Terminalbeginning 2003.

ven though we saw the market reaching levels above Jan08 highs, the multi-year con sol idat ion is expected to shape up l ike a large decade-longiametr ic, looking similar to the consolidation we saw from 1992 to 2003. Our trading/ investment strategies should be designed accordingly.

he suspected corrective phase beginning Jan08 would be the 2nd

wave with in the larger 5thwave. This 5

thwave is suspected to be forming as a Term

ue to absence of impu ls ive behavior in i ts internal 1stwave. The Terminal confirms when the Sensex drops below the 2-4 line of one higher degree.

ne may see the Yearly chart in Appendix, which shows the 2-4 line and its values for the next three years. Remember, Terminal development us ual ly vio lhe 2-4 line.

he Sensex is assumed to be under the influence of a large 8-year cycle ever since its birth. As shown on the chart below, '1984 was th e beginnin g of 8-yeang b ull-run til l '1992. In our Super-Cycle Degree count, shown on ASA Long-Term chart under a separate paragraph, weve considered 1984 as the begin

oint for the most dynamic 3rd wave.

he next two important turning points oc curred exact ly 8 yearsthereafter, in '1992 and '2000. Both these turning points were marked by stock market scecause of which, the leaders of the rally had extremely difficult time later. For example, ACC, the leading stock of '1992 bull market, remained below its highs


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nd of '2004. Similarly, the IT stocks, which were leaders of '2000 rally, lost as much as 90% of their top valuations by the year '2003.

uring 2008, we were sitting on this very important cycle, which therefore, threw up similar possibilities.

the previous 8-year cycle top during 1992, Sensex lost 57% from 4546 to 1980. In the next cycle top, the cut was almost 58% from 6150 in 2000 to 252001.

We had, accordingly, targeted sub-10k levels for Sensexprice-wise during 2008-09, and a minim um of 13 months into bear phase, time-wise. The price

rgets were achieved as Sensex dropped 63% from 21206 to 7697. The yearly channel, shown below, which was used earlier to project 20000 level for theensex during 2007, was broken when the Index moved below 17200.Break of this long -term channel also weighed in favor of a larger correct ive phasol lowing this 8-year cycle.

ppendix : Lo ng-term scenarios for Sensex

s for the larger-degree wave-scenarios, I consider two alternatives :

he first one assumes that a large Triple Combination corrective, beginning Sep'1994 got over in Oct'2005 at 7656. The last corrective within this Complexorrective phase formed as a "Non-Limiting" Running Triangle. This has been my preferred scenario for many years, which I had assumed to be underevelopment since I began long-term forecasting during 1997-1999. This one was the basis of Forecast for the 21stCentury article published in Businesstandard (which can be read on vivekpatil.com).

his scenario also combines well with the traditional channeling technique. Sensex followed a parallel channel for 11 long years from Apr'1992 to May'2003. Aad shown, if one projects the width of this channel on upper side, such a projection also gave 20000 as the minimum target. This forecast was achieved. Thcenario is shown on the chart given below :


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s per my second alternative, a Super-Cycle-Degree 3rd

(or 5th) began since Nov84. Its internal 3

rdwas an extended leg, which achieved exactly 261.8% rat

e 1st

on log scale. The Sensex is now forming its 5thWave, and the same is likely to develop as a Terminal, because its lower-degree 1

stwave since May0

eveloped as a Diametric (a corrective structure rather than an impulse).

Within the non-directional legs, 2nd was exactly 61.8% of 1st value-wise, and 161.8% time-wise. The 4th was 38.2% of 3rd value-wise, and 261.8% time-wisehown below.

ince the 5th

is now more than 61.8% of 3rd, it may lead to a "Double Extension" scenario, wherein both 3rd as well as 5th would be extended waves. This sce

shown on the the chart given below :


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evelopment from May03 is a 7-legged Diametric formation, marked as a-b-c-d-e-f-g. It is called "Diametric" because it combines two Triangular patterns, oneitially Contracting up to the "d" leg, followed by an Expanding one. The contraction point is the "d" leg, and the legs on either sides of it tend to be

qual. Accordingly, "c" and "e" were equal in "log scale", both showing about 60% gains. Similarly, "g" was equal to "a", both showing about 115% gain.


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.

he Diametric development from 2003 to 2008 has been considered as the 1st of the 5th. Due to the corrective structure in the 1

stleg, larger 5

thcould be deve

s a Terminal. Since 2008, we are into its 2nd wave, which could continue to develop over 8 years from 2008.

he "Double Extension" scenario was also shown on following ASA Long-term Index (chart below). I've created this chart combining Index compiled by a Britidvisor (from '1938 to '1945), RBI Index ('1945 to '1969), F.E Index ('1969 to '1980) and Sensex (thereafter till date).

he wave-count presented on ASA Long-term Index favors the alternate wave-scenario discussed above. The labels show that the market is into the lower-deth of the SC-degree 3

rdor 5

thwave. If a "Double Extension" unfolds, Sensex could be projected to achieve even 50000+.

break of 2-4 line would confirm the Terminal development inside the 5th, and would therefore, restrict the upsides to much lower levels than 50K, but end su

bove 21000.

the 5thprov es to be a Termi nal, one larger-degree label of 3

rdwil l have to change to 5

th, because only a 5

thof the 5

thcan be a Term inal. The Super

ycle-Degree marking for 1stand 3

rdshow n, would then change to 3

rdand 4

threspect ively, as shown in White.


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


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Weekly Technical Analysi 2 July 2012

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