Stocks at major risk: Reliance, Ongc, DLF, LNT and NTPC
Probability for Nifty: 4400 on Expiry.
Probability for Sensex : 14700 on FNO Expiry
Last week I marked drop to 0-b line as an "x" wave and said
"Technically, 'a' of second corrective should move above the top of the first
corrective, which was at 17735 … we'll see if the current "a" of second
corrective can cross above 17735 as per assumptions, and configure the second
corrective accordingly from thereon."
Sensex, however, failed to cross the top of first corrective, and reacted from
80% correction level to previous fall. Nifty reacted from 61.8% correction
level. Rejecting any positive expectation, Index had lost as much as 785 points
or 4.5% by the end of the week. Banks and Realty lost more, about 8% and 7%
respectively.
Index is now testing its previous lows. This support area is from 16626
(Friday's low as well as low of 14th May) to 16452 (previous high). Some effort
to hold these lows may not be ruled out.
However, a decisive break below this area, especially with a sustainable
gap-down that creates a Weekly downward gap, would seek severe downsides. Such a
move would result in weakened structure, with confirmed lower bottom after lower
top formation after 17735. Once the Index sets itself below the support area at
16452-626, we may see downsides up to 15300.
Wave-count wise, previously I had marked an "x" at the lower channel. Holding
the support area at 16452-16626 could configure the second corrective as an
ending Triangle, which is allowed to get developed outside the channel.
However, a strong break below 16452 would compel me to reject the "x" label
altogether, and mark end of "d" or "x" at 17735. This would mean a fresh
down-move beginning from 17735. In such case, "d" or "x" ended as a as a normal
Zigzag, and either "e" of Triangle or "a" of second corrective (after "x") has
opened downwards.
As for the larger label whether the up-move from 14677 is an "x" or "d", label
of "x" is "less likely" because it configured as a Zigzag, against the first
corrective which was also a Zigzag. Remember, "x" usually alternates with the
first corrective. Therefore, if the first corrective is a Zigzag, then "x" has
to configure as a Flat or a Triangle.
My initial thoughts, therefore, support "d" label at 17735, suggesting "e" leg
has opened downwards if support area breaks.
As an added confirmation, we'll watch 15300 level on downside, which could help
us differentiate between the two. If it is an "e" wave, then it would probably
hold the 15300 level.
Below 15300, the move would become part of the second corrective, which would
then break even 14677, with market going into a protracted bear phase lasting at
least 13 months from 'Jan'08 top, following the 8-year cycle, explained
separately.
I had also said that "… no matter whether this upward wave is an "x" or "d", so
long as it terminates below 18250 level, Sensex will be in danger to fall into
8-year cycle. Below this level (i.e. 18250), the current rally will remain
smaller than the previous rally from 15332 to 18895, which had measured 3563
points.
Only above 18250, however, this rally would have become larger than the previous
rally, which as per my calculations, would save us from falling into the
much-feared 8-year cycle. Why ? Because beyond 18240, it would bring in
"Principle of Extraction" in action, which displays drops getting smaller, and
rallies getting bigger, within the corrective phase starting 'Jan08. This would
have led to creation of positive structure required to end the corrective phase
as per the May'Bottom cycle. Remember, the second drop (from 18895 to 14677) was
already smaller than the first drop (from 21206 to 15332).
On Nifty chart, the equivalent to 14677 bottom was higher than its Jan'low. It
was 4468, against 'Jan low of 4448. This also favors a triangular structure,
rather than a Zigzag + X since 'Jan'High. Whether the structure would be a
"Normal Contracting Triangle" or "Extracting Triangle" would depend on whether
"d" turns out to be bigger than "b" leg or not. In both cases, I had said, "'e'
leg downwards will still be pending."
The May-Bottom Cycle
The bull-phase from '2003 to '2008 phase had continued for over four years,
wherein Sensex multiplied 7 times from 2904 (May'03) to 21206 (Jan'08).
Cycle studies indicate Sensex' tendency to hit a high in the first quarter every
year during this bull run, and low near every May. Since we already have an
important top in 'Jan this year, we are looking forward for a bottom by Apr-May
in line with this cycle study.
The 8-Year Cycle
A much bigger cycle is the 8-year cycle. As shown on the chart below, '1984 was
the beginning of 8-year long bull-run till '1992. In my Super-Cycle Degree
count, shown on ASA Long-Term chart under a separate para, I have, in fact,
taken '1984 as the beginning point for the most dynamic 3rd wave.
The next two important turning points occurred exactly 8 years thereafter, in
'1992 and '2000. Both these turning points were marked by stock market scams,
wherein the leaders of the rally had extremely difficult time later. For
example, ACC, the leading stock of '1992 bull market, remained below its highs
till end of '2004. Similarly, the IT stocks, which were leaders of '2000 rally,
had lost as much as 90% of their top valuations by the year '2003.
This year, we are sitting on this very important cycle, which therefore, may
throw up similar possibilities.
Weekly channels
The following channels shown on the Weekly chart have guided the Sensex
movements almost exactly.
The 'Jan low at 15332 was made near the lowest channel line. Recently this line
has also been broken. The recent rally appeared like a pull-back to the channel
just broken.
Remember, all of these channels were drawn over a year ago.
Alternative scenarios for Sensex
As far as larger wave scenario is concerned, I have been explaining two
alternatives :
The first one assumes that a large Triple Combination corrective, beginning
Sep'1994 got over in Oct'2005 at 7656. The last corrective within this Complex
Corrective phase formed as a "Non-Limiting" Running Triangle, the breakout from
which has already occurred. This has been my preferred scenario for many years.
(Remember, Non-limiting Triangles, as the name suggests, do not impose any limit
on the post-pattern behavior).
This scenario also combines well with the traditional channeling technique.
Sensex followed a parallel channel for 11 long years from Apr'1992 to May'2003.
As I had shown, if one projects the width of this channel on upper side, such a
projection gave 20000 as the "minimum" target for Sensex. The same has been
achieved already.
As per the alternative bearish scenario, a Diametric had been developing into
Sensex' 5th leg of impulse. In this alternative, the 4th wave ended at May'2003
low near 2904. The 5th leg, being a non-extended wave of the Impulse, should not
have gone much beyond 61.8% ratio to the 3rd, which projected a maximum of
13300. In this argument, the 5th wave was assumed to be the "non-extended" leg
within the Super-cycle degree 3rd which began at 259 in Nov'1984 as shown below.
(in an Impulse pattern, only one directional leg can be the extended leg.) As
per this wave-structure, the 3rd (of the 3rd) was shown to be the extended leg,
which achieved exactly 261.8% ratio to the 1st on log scale. The 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-wise, as shown below.
There are good ratios present within different waves, as explained on the chart,
to support this scenario. However, the Sensex sustaining well above 13300 may
lead to a "Double Extension" scenario even by this alternative, wherein both 3rd
as well as 5th would be extended waves.
The development into 5th wave was read as a "Diametric" formation. It was
explained that the well-channeled legs, with a subsequent correction of less
than 61.8%, led to the suspicion of a "Diametric" formation. (Remember,
channeled moves usually indicate complex correctives, which should normally get
retraced by more than 61.8%, except within the new pattern called "Diametric").
Diametric formation has 7 legs, marked as a-b-c-d-e-f-g. It is called a
"Diametric" because it combines two Triangular patterns, one initially
Contracting up to the "d" leg, followed by an Expanding one, thereafter. The
contraction point is the "d" leg, and the legs on either sides of it tend to be
equal. Accordingly, "c" and "e" were equal in "log scale", both showing about
60% gain. Similarly, "g" achieved equality to "a", both showing about 115% gain.
This Diametric could be taken as the 1st of the 5th (5th, which, due to its
corrective structure, could be developing as a Terminal wave). This Diametric in
the 1st leg of probable Terminal wave appears to have ended at 'Jan'08, and we
may be looking at the 2nd wave downwards within this Terminal.
.
The "Double Extension" scenario was also been shown below using ASA Adjusted
Long-term Index chart. I've created this chart combining Index figures compiled
by a British advisor (from '1938 to '1945), RBI Index figures ('1945 to '1969),
F.E Index ('1969 to '1980) and Sensex (thereafter till date).
The chart shows the Super-Cycle-Degree count that I had been presenting since
many years ago. The labeling shows that the market is into the 5th of the
SC-degree 3rd wave. This 5th leg (within SC degree 3rd) may have begun either
from 2904 (May'2003) or from 7656 (Oct'05). In case of the "Double Extension"
scenario turns out to be true, Sensex could be projected to achieve even 50000+.
Technical Analysis - Stocks
Change of Polarity Principle
Previously, on 3rd March'08, I had explained "Change of Polarity Principle",
where previous lows turn into resistance.
I had examined the following five major heavyweights showing this principle,
marking their change of polarity at respective previous lows.
Even after two months, these resistances still keep these major stocks under
pressure, indicating power of this technical principle.
1. Reliance : Showed hesitation at previous low of 2654
2. ONGC : Failed to cross 1115, weakened to test 'Jan lows
3.NTPC : Failed to even reach 225, in fact reacted from 210 level shown as
lower resistance
4. DLF : Failed to reach 905, created fresh change of polarity at 'Jan low
of 740
5. L & T : Created fresh change of polarity at 3204
Nothing in this article is, or should be construed as, investment advice.
Rohit
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