Nifty : Testing Mr. Elliot

To start with, the rounded reversal hypothesis described earlier fell flat face as Nifty took support at 4950 and bounced. The enormous short that got built during the fall, started covering once Nifty moved over the 5050 resistance. Very soon Nifty crossed 5100 and touched intraday high of over 5150 on 23rd Dec. The next day though Nifty moved sideways for better part of the day, second half saw more short covering which took Nifty to new 2009 highs of 5198. I wonder if bears can have faith on 5180, as Nifty closed marginally below it. 29th Dec should again be a good day to start with, but it remains to be seen if Nifty can cross 5180 and 5200 resistances. But for sure bulls will be incharge and any hopes of seeing a sell off is more than a wishful thought.

Last 3 trading days of the calendar year, hardly invites major interest and it promises to be a tepid end to an eventful year. The beginning of which was marked with Satyam catastrophe, Nifty was tied to 2500 which now seems to be a major bottom, we saw an upper circuit on Nifty and had record breaking volume days.

Now that the earlier scenarios have failed, lets see if something can be salvaged out of it, or we need to frame a new structure. In the chart above, 5182 touched in October (labelled as [5]) should still be valid. There are many characteristics in that wave that makes it so, namely Ending Diagonal pattern and more importantly a wave up after the momentum high wave. Anyway till this pattern is not totally violated lets stick to it. The 4539 low then should be treated as the end of wave A and the current upmove as the Wave B, which basically is the structure I have been sticking to. The only major change that would occur is that the flat ABC correction would be a more complex one.

The rise from 4539 (labelled as [A]) should be the counter-trend wave B and hence should be a 3 wave pattern. First of which ended at 5138 marked as [i], second ended at [ii] and the third is in progress. As this is the motive wave it should be a 5 wave structure, which we can assume to have started from 4807. In that case wave1 ends at 5183 and wave2 ends at 4944 and what we are left with are strong upside wave3, a modest corrective wave4 and another upmove of wave5 which should end with negative divergences.

Taking this into consideration I come to the following MINIMUM targets:

wave3 which is under progress should take Nifty to a minimum of 5320

the deepest of correction should bring it back to 5130

the last upside move can take it back to 5360

The reason I am taking the most modest of targets is that a flat ABC correction is valid only till wave B is at most 138% of wave A. This level comes to around 5430 and any move above this will completely invalidate the theory of this being flat ABC correction. Another resistance to be noted is 78% retracement of the fall from 6350 to 2250 which is around 5470.

So in my opinion Nifty looks bullish currently and a target of 5350 can be achieved in near term, which could be as early as mid January. Movement above that is surely going to tough, though we can see Nifty in 5400s with some good luck and good news. Any move into 5500s would surely make things ultra bullish and we should see Nifty flirting with all time highs of 6350. Corrections on the other hand after touching 5300s could take Nifty to as low as 4300s. This correction if the wave count is right should happen in 10 to 17 days as Wave C has direct relationship with Wave A which was nothing other than sharp!

The end of a long term uptrend is always marked by heavy retail volume, violent corrections and euphoric rallies, extreme values of PCR and a general bullishness about economy and stock markets. Some of these things are yet to be seen and hence all my correction hopes are getting thrashed. Lets see what we get in coming days, does things occur as Elliot Theory allow us to anticipate or this is yet another futile attempt to predict the market.

Stock Idea : OnMobile Global

Stock Idea : TVS Motors

Stock Idea : KS Oils

Paul Kedrosky "Contrarianism is the New Consensus"

It rarely pays to be contrarian. For the most part trends go in the same direction for some time – that’s why they’re called “trends”.  Whether it’s real estate prices, credit card debt, Treasury issuance, or Croc sales, they can continue along implausibly for far longer than you might think, sane and right-thinking and sober-minded sort that you are.

But contrarianism can work sometimes. When? At inflection points, mostly, when the trend is exhausted and can do nothing but reverse. It can then pay immensely (c.f., John Paulson) to take the other side of a cemented consensus. The trouble is, it’s just about impossible to pick such inflection points – lots of people went short residential real estate well in advance of Paulson, only to lose oodles of money.

Given this, why is contrarianism so appealing? It is appealing – and growing immensely in popularity – because it has so much smart-guy frisson. This naive contrarianism lets you pose outside the system, meanwhile keeping good company like Warren Buffett, John Paulson, the Freakonomics fellows, and oodles of self-declared fellow travelers, most of whom almost certainly aren’t doing what they say they are.

Contrarianism also appeals to our increasingly cynical nature. It is the superficial idea that most people are wrong about everything, especially if they are in government, on TV, among the putative intelligentsia, etc.They think that? Ha, I’ll take the other side, etc.

I was reminded of all of this earlier today in reading a piece in NY Magazine about the past decade’s burgeoning business of writing contrarian books & articles. The topics were wide-ranging, of course, including everything from car seats (they don’t work!) to presidential sloth (it’s okay!) to the environment (it’s all good!), to gravity (overrated!  [ed., You made that up]), but the upshot is the same: The consensus is wrong. It is to the point that as soon as something is consensus you should start a mental countdown to the day when the inevitable contrarian take shows up.

The trouble is multifold, however. First, contrarianism mostly doesn’t work – trends last until they don’t, which is often a long time, especially in a world of tight-coupling and information cascades; and long-lasting trends crush smarty-pants contrarians like bugs the whole way. Second, the consensus is more often right than the anti-consensus consensus likes to think. Call it wisdom of crowds or whatever you want, but the consensus isn’t that dumb, most of the time.

As I am stubbornly fond of pointing out, given all the flaws in human decision-making pounced on by behavioral finance sorts, decision theorists, psychologists and the rest, you’d think we humans couldn’t cross the street successfully, or invest or raise kids, or, say, wander along as a species steadily getting healthier and wealthier for a few thousand years or so. And yet, here we are. Easy and naive contrarianism about everything has become the new consensus – and that is a kind of bigoted and dumb consensus around which I’m happy to go the other way.

Stock Idea : Infosys

Nifty : Crude way?

Lets look at crude first which has dropped a lot after forming a ranged top in the $77-$82 region and since has been declining consistently to almost $70 level. What we see in the chart is the formation of a Top after hitting $80 level regularly which it found pretty difficult to cross. Failing to cross a resistance is a very strong sign, that prices will go down (maybe significantly at times) and then reattempt to break it.

We see a rounded reversal pattern here which looks to end only around 65-67 levels. Prices currently are in a very bearish orientation and hence can go lower from here.

Now lets look at Nifty chart above. Here as well we see multiple attempts to break the 5180 resistance. And if sentiments remain positive but conviction to buy at higher levels do not come, we can expect to see Nifty decline in the same way as we see Crude Oil decline above. Which would be slow initially and picking up pace in latter phase. Though predicting the time frame in which this flattish range breaks is almost impossible.

I have been reading, hearing and even writing about the more probable outcome of a ranged trade which is a fast and fierce in either direction. Markets love to surprise, who knows we will never get the sharp movement which we are expecting on the breach of 4950 or 5200, but get this slow movements and pick pace when we least expect! The idea is not to stand for a view but to be open to all and position yourself aptly!

Gold : Buy or Wait?

The recent rise in the dollar, which was considered a bearish sign for equities and commodities isn't playing to perfection. On one hand we are seeing the S&P500 as well as Asian markets moving within a range, threatening to breakdown at times and breakout on others. On the other hand commodities which are more direct play nowadays to the dollar is showing the inverse correlation to some extent.

Crude which was trading above $80 has slipped to near $70, even when there has been supportive news of economic revival and less job cuts! Gold's fall has been even more pronounced as it has been a lot quicker (from 1225 to 1115 in just over a week's time). And only reason that can be associated is dollar's rally which has shaken off the weak hands. Will the dollar rally more and push gold's prices even lower, or has the gold reached strong support zone from where it can target higher levels remains to be seen. Let's have a look at what the charts say. In one of my previous post Bank Nifty : Reversal of Trend I pointed how "trend arc" breaks and similar pattern is getting formed in Gold.

In the chart above we see how gold started rising in a parabolic fashion and then broke from the trend arc support to keep falling. We have already broken the short term moving average and hopefully find support around the medium term moving average. The MACD shows that we have made a new high in negative momentum, it generally points to further lower levels after a brief rally. But one definitive thing that comes out of the chart is that gold too had been a playground of speculators off late. Strong rally and even stronger corrections are signs of leveraged activities. Only time will tell us how much of speculation was going around in the name of "hyperinflation".

Now take a look at the chart above. What we see is another parabolic rise in the chart of Gold, the only difference is the time frame. This weekly chart of Gold shows some kind of absurd rise since March without any meaningful correction. One can argue that so has done the equities, but remember this is not a sign of a healthy trend. One can expect the retest of $1000 levels which had been a resistance earlier at some point of time. Surely should be a great buy then.

I am not suggesting that gold will have a major correction, but the chances of it going higher from here are quite low compared to chances of it going lower. Buyers short and long term should be wary and definitely resist the temptation if it goes below 1100.

NIfty : Trin in Support Zone

For last 20 trading days which means almost a month Nifty is in a tight range of 4950 to 5150 if we consider the closing prices. This kind of range bound trading as experts say cannot carry on for long. Either the bulls or the bears will finally give up and the market which has been suffocated will break free, the move can and should be a fierce one, in whichever direction the market decides to go. I am sure readers must also have noticed that US market is also in a tight range. Have not been tracking other markets but I guess it should be more or less the same for all of them.

This uneventful though interesting phase of trade is definitely good for option writers, where a "Strangle" pays them handsomely. But it can kill you if you do not have appropriate stop loss, as you know one leg of the Strangle can give you enough loss to take away months of profit.

Lets focus on the TRIN chart which has started giving some "confusing" signals. Firstly what we see from the blue arrow is that though the TRIN was rising, Nifty kind of moved upwards. Later from the start of red arrow Nifty has virtually not moved at all but the TRIN has fallen quite dramatically! Both these observations are against the classical belief of "rising TRIN is bearish and falling TRIN is bullish".

Next point to be noted should be that TRIN is back into the support zone of 0.55 to 0.7, so we can be forced to think that TRIN should bounce from here making Nifty ideally go down or atleast go sideways, but definitely not go higher, unless something which happened around the blue arrow happens again!

I am not going to stick my neck out this time to predict where we are headed, from this point, but people interested in betting on markets (with getting a kick out of life, or living on the edge etc kind of attitude) can surely buy 5100 Calls and Puts simultaneously. If this breakout or breakdown has to happen in December (there is a large probability) then I am sure gains would be worth flaunting! The target of this should be 5350 on a breakout and 4750 on a breakdown.

Coming back to subject, as TRIN values for any particular given day can be very absurd, we use 10 day SMA to cut the noise and show some kind of trend. So for each day we drop the last day TRIN value and add the latest one to get the 10day TRIN SMA. Interestingly we have dropped a low TRIN and added a high TRIN but still managed to get a lower 10day TRIN SMA!! Are we missing something that eyes dont meet or are we being fooled by randomness!

Stock Idea : HUL

Nifty : Bearish Drums Again!

I don't know why but i keep getting reasons to be bearish again and again. Maybe I get more pleasure in finding reversal patterns than in continuation ones. I would rather enter a trade early than join the herd much later. So in this bullish environment I like being pessimistic.

Last night was enthralling for a bear. US jobs data was pending and Dow futures was cautious but optimistic and was trading at +25. Soon an unexpected positive surprise came and there were talks about how economy earlier and now jobs have bottomed out. Dow had shot up to +115 with the breaking news. After market opening of +100, Dow kept rising and threatened to blow out of 10500 resistance trading at almost +150. But soon came something more unexpected, the "frail" Dollar too started moving up, on fears of limited days of near zero interest rates. This started putting pressure on Equities as well as Gold! Incredibly Dow almost fell to -50 in an hours time. Gold ended the day almost at -5%, the highest fall in recent memories. If you see the volume of US markets its far more than current averages. Crude Oil as well was having a bad time but not as much as Gold.

So what can we make of what all happened in a single day. Good news is no longer good for stock markets, which means there is very limited upside left, if any. If such a good news cannot lift the market, imagine what an unexpected bad news can do. But as we know stock markets are much smarter (most of the times) and we can say some amount of interest rate hike in coming quarters has already been priced in and maybe will do some more in coming days. The dollar though was looking on the verge of collapse never really went below its previous lows. There are lot of big players supporting dollar at lower level, though they never admit it on CNBC! If all the recent fall in dollar had been due to shorting (dollar carry trade etc) we can see a huge short covering rally.

If that happens we can see all risk appetite and liquidity going out from commodities and equities. Yesterday we got a glimpse of that in Gold's price action. A 5% drop certainly meant that there was huge speculation and hype around, and all weak hands had to cover their position. I am very glad for the people who sold Gold contracts over 1200 dollars, when talks of 1500 was doing the round, and they were and will be aptly rewarded. And this is why I love being on the other side, when they profit they do it with style! Talk about the guys who made money in the housing meltdown!

Anyway, lets see how things can impact us if last night was really a turning point. Lets take a look at Dollar first, we see a big white candle going far above the 21day EMA and almost breaking out of the channel. If on monday we dont see a fall in dollar and in coming days a drift back into the channel we can safely say that there is more upside to come. The lower black line if considered gives a falling wedge impression, minimum target on its breakout is 77.5! I have not labelled but dollar seems to be completing a 5 Wave down structure and is ripe for a pull back. How much its going to be remains to be seen but a target of 80 for medium term can be expected. We also see positive divergence both in MACD and RSI, surely some sort of non confimration in the trend. Which means the fall has not much of strength to carry on and we can see some sort of reversal.

Now lets focus on Nifty's price action. Since my last post after Dubai scare, Nifty kept going higher and in last few days was struggling to close in positive territory, despite positive cues from global and currency markets. And in doing so what it achived is even more encouraging for bears! I have labelled the wave count as per EWT, and what it suggests is a flat ABC correction. Which means that the next price action should be a Wave C down with a minimum target of 4540 the previous low. It would be appropriate to add that the above pattern also translates as a "Double Top" but will come into picture only when 4540 support is broken, the final target in that case would be another 600 points lower and around 3900. But lets take things one at a time and first focus what if this possibility goes wrong.

So I will keep a track as to how world markets are doing, are they encouraging for India, will the good job numbers come into play again and propel rally in US markets? Is there more liquidity waiting on the sidelines? How is the dollar getting treated above the trend line? Is it a bull trap and dollar has to test it previous lows of 72? Is Nifty getting ample support at 5000 to surge ahead for new highs? We have supports at 5000-5030 and then 4800, is the Nifty showing lot of respect to them?

Above listed factors are surely things to watch out for if you are a bear or hold positions in risky markets (equities , commodities). Beacuse in life and in markets you never know what lies ahead.

Nifty : Crystal Gazing

I am being a bit wild here in today's post just as the Stock Markets around the world. Typically the day after expiry which always is a Friday tends to be a slow trade day, where big players just chill and enjoy the spoils of the previous series, watching poor retail investors and traders struggle among themselves trying to move Nifty by 10-20 points! But I am sure the overnight news from the Middle East mostly known for its exotic hotels and duty free shopping would have spooked them, ensuring the beer had to wait a little longer.

Nifty opened 100 points down straightaway and slided almost another 100 points, with 300 points shove off in a matter of hours it was obviously damn oversold. Traders not realizing it would have been caught in their "shorts". So what we get is another 150 points though in the other direction. Almost a week's swing in a single day! What I personally have learnt from today's price action is that we cannot take anything for granted, I could have easily sold 4900 Nifty Calls when it was at 4800 expecting to make a decent gain in coming days and end the day almost at 200% loss, a trade going horribly wrong!

Anyway coming to Charts and Technical Analysis, today's candle has a long tail below showing buying (short covering) taking place till the last moment we can expect this bounce to continue maybe till around 5000, but should be facing significant resistance at 4930-4950 levels which acted as good support earlier. I consider 21day EMA as a very good indicator so would be betting on not crossing it on closing basis.

Coming to the chart that I have shown, though its very early days for it but the pattern is getting formed almost perfectly. The Head and Shoulder pattern is one of the strongest and most reliable indicator of a trend reversal. Instead of going into the details of it, I would like to point that it confirms the end of a 5 wave structure and suggests a meaningful correction. As per the chart we can see Left Shoulder, Head and Right Shoulder, now if Nifty breaks the neckline and that too with good volumes it surely means the end of the "bull run". I feel in coming days the level of 4700 on nifty should be watched very carefully, this is where the neckline support would be in around a week and a half time.

I have rechecked my H&S notes to see if all the indicators fall in place, and to my surprise they do! Be it left shoulder within the up trendline, volumes increasing in left shoulder and then decreasing in right shoulder. But surely we can get mistaken so a confirmation of neckline break is of utmost importance for this hypothesis to be valid.

So what if this is a H&S pattern. The break of neckline around 4700 region with volumes would give us a minimum downside target of 4700-700=4000! Though we can expect a bounce from oversold levels after breaking the neckline which should be resisted at the neckline. I am talking about very distant future but that's only my concern for this post. So if things fall in place, I am sure december and early january is going to be a period to watch out. Historically not much happens in this holiday period across the globe, and for the above reversal to happen I feel we would need good participation. Lets see how this unfolds, but chances are that the fund managers are not going to have a relaxed vacation.We have 20 days to trade in december and the way situation take dramatic turns overnight, its not a distant future what I am talking about. Lets see if Dubai Debt issue proves to be a trigger for sell off or a start of a new crisis or who knows another false alarm giving opportunity to buy.

Nifty : TRIN view

For last few days we have been seeing Nifty rallying even though there is lot of skepticism around with "experts" first pointing 5000 and then 5100 as strong resistances. The funny thing about market is that disbelief related to a particular move is an ideal condition for it to play along.

So if on Friday the only move I and a whole lot of "Shorters" expected was down or a minor bounce which would be sold off, we were surprised by a strong move from 4935 to 5070! We also have been feeling that way since March, when all that was between Dow 6500 and Dow 5000 was TIME! And since then most of us have painfully seen the stocks rise in an unbelievable way, majority of the them multiplied by a factor of 5 to 8. Well my point in reliving the pain is to point out how extreme sentiments in Investors affect the Market.

Coming to the Technicals; though the Nifty has been rallying from the 4540, it has been doing it with some negative divergence. Apart from it the only other bearish indicator left is the TRIN. TRIN for those who are unaware about it measures the ratio of money flowing out of a falling stock to the money flowing into rising stock. TRIN can be calculated only for an Index. Moreover day to day values of TRIN swing wildly, so normally a 10 day simple moving average is used. Bottom line is that a rising TRIN is bearish and a falling TRIN is bullish.

The chart above shows the recent TRIN and Nifty relation. Look how at A and C the rising TRIN had bearish impact on Nifty. Interesting to note is that how at B the small rally in TRIN was negated in effect. The current rally initially had TRIN falling but suddenly we see that though Nifty is rising the TRIN is also keeping up. The reason definitely being the rise not having large volume or only a few stocks are propelling the rally. Whatever it is, one thing for sure is that the rally is not having great legs to run on.

The another thing to be noted on the chart is how 0.6 to 0.7 has acted as a decent support of TRIN having just a single "throw over". If this level has to hold we cannot expect any major broad based rally in the Nifty before having a decent correction.

One more point which I note but am not sure of is the green trend line of the TRIN. We can see how apart from a June aberration the trend holds on. The doubt that I have here is that can something which is a result of trading and not trading itself follow Technical patterns? But if support on such a thing can exist so should trend lines. I would like to know what other readers think about it.

Assuming TRIN to also follow these patterns we see that it is forming some sort of "Descending Triangle" which classically breaks on the downside, though not always. Which ever side it breaks we can expect some large moves in Nifty, my guess would be an early 2010 boom or bust. There is an eerie similarity between the CBOE VIX and TRIN. Lets decode...

Bank Nifty : Reversal of Trend?

After the recent steep correction and a V shaped recovery in the Indian markets, talks of breaching the recent top of 5182 have resurfaced. I have started hearing 5250 as the next target and many "analysts" are finding hope in the recent Dow's movements which has taken it to new highs of the calendar year. I am sure these analysts are aware that different markets around the world "Top" at different time but choosing to ignore.

As of this bear market and recovery, China is the leading market having bottomed first and most probably even topped first. Indian markets are bit behind if we consider recent highs to hold, and in that case US markets are the laggards.

This aspect even works for different sectors in same markets. So for Indian markets we can say that the Telecom sector may have topped first, though we don't have any Index to follow that and may be even Realty. Its always a great place to be in if we identify a sector which is leading the overall market. Finding technical reasons to identify "Tops" and "Bottoms" in it can give us huge advantage in betting on other sectors that are playing catch up as we know how they are going to behave.

Lets take a look at the Bank Nifty which after having a phenomenal run has shown signs of exhaustion. Take a look at the "trend-arc" which initially was rising at a nominal slope, started rising almost vertically. Obviously this was not sustainable and it had to give way at some point. We see a break from the trend and now it is struggling to even attain those levels. This is a clear sign of buyers becoming reluctant. If we take a look back crude oil also made a rising arc before getting reversed and it seems that gold is currently doing the same.

Now lets have a look at the bottom panel of Mass Index, which I have hardly seen being used by many. What this Index most accurately does is predict reversals. (You can google to get the theory and calculations behind it.) The criteria for Mass Index to indicate possible reversals are:

1. The Mass Index going above 27 (red line) and then falling below 26.5 (blue line)

2. 9 day EMA line point upwards, (if it points downwards with above condition met, a reversal on the upside is possible)

We clearly see the above conditions being met, so we can safely assign a higher probablity to the reversal, than this to be a false alarm. Fundamentally as well Banks are not in a very great position, with Inflation rising and hike in Interests rates fears being the prime concerns. Moreover interesting this about initial phases of a reversal is that it looks like profit booking! So the stocks and sectors which have given the highest return starts the correction which is a fast paced one.

So is the Bank Nifty a tad ahead of the overall market in signalling a possible reversal? Only time will tell, but we have seen in past that how swift and "time-wise" efficient the global markets have become. If this is a reversal scenario then we will not see Bank Nifty to reach previous high though it is not far and maybe see a stronger correction in the next leg of fall.

Now the other question is if Bank Nifty has really reversed what happens to Nifty. Banking have around 17% weightage so it is quite hard to imagine Nifty going higher with such a huge part of it underperforming.

For more enthusiastic readers SBI has also given such a reversal signal among the Banks.

If you take me seriously consider shorting it !!

Another Reason for 3900 Nifty!

Not much to write about, as I feel the chart itself is doing a lot of talking. As I have pointed out earlier, the rally that we are witnessing from 4540 can carry itself to 4860 and then 4925, which should end the Wave B and another slide to a minimum of around 4500 should be expected.

The expected fall (Wave C) can be a time taking process, the maximum target of which should be around 3900. What would drive such a large correction (almost 1000 Nifty points) cannot be only profit booking or something very technical like overbought conditions.

In my opinion the reason for the fall would be the reason for its rise, which is The Dollar Factor. The Dollar chart from June shows, that we are at almost the fag end of its downtrend in short term and it can reverse anytime now. For equities and commodities world wide its like unfurling the victory flag, at the apex of a volcano ready to erupt. Crude Oil for example is already forming a topping pattern and Gold on the other hand though is making new highs, looks in a final burst before the collapse.

The counter argument I always hear is that, the Fed is not at all in mood of doing anything to strengthen the Dollar, and which means we will remain in this kind of free money environment for much longer period. That may work for long term outlook, but in short term, where not only sentiment impacts trading but also trading impacts sentiment; I guess we are going to see a 15-20% counter move in Dollar pretty soon.

Nifty : What after the oversold bounce

After the carnage on Tuesday, Wednesday saw Nifty regain all the losses and Thursday was a day of dramatic turnaround led by short covering. Nifty was having good support at 4600 and that triggered shorts to cover. We all know that markets never move in a straight line and the zig-zag price movements kill traders on both side. So when money making was getting easy by shorting, we get these bounces which are extremely hard to catch for anyone who plans to get long.

In the morning I heard "experts" talking about Suzlon being the weakest Nifty stock and chances are there for it to totally breakdown and reach to 40 within few days, it closed on 55 the previous day (a fall of over 25%). I immediately calculated how much money I can make by shorting a single lot of Suzlon. As my broker never allow me to exceed my margin I kept ruing about how many such opportunities I am missing every day! Guess what Suzlon was 3% higher when Nifty was almost 100 points down for the day and closed 13% higher and I am sure there are more such days to come, it will start falling again only when all the shorts are cleared off the system! The point that I am making here is that we can rarely catch the counter-trend moves, so the best tactic a trader should approach is to get out of markets way.

Coming to Nifty, what we have seen in last two days and maybe see tomorrow as well is one of these bounces from oversold levels, which is having support of good news (scaring the shorts even more). If we get some gap up opening in the vicinity of 4800, we can see Nifty rally much higher, cleaning whatever shorts that are left or might have been created today. 4860 should be a good initial target to keep an eye on and 4925 if that breaks.

But the higher levels we reach, steeper the fall can be from there. Because in my opinion the uptrend has been broken and we have to see levels lower than 4540 to justify the new negative momentum high that has been made. As per chart and new Elliot count we have ended the uptrend at 5182 and made the wave A low at 4539. Wave B should take us to a minimum of 4860 and then Wave C should take us lower from there. The expected amount of fall is a very large range (400-1000) points. So what we can for sure expect is a test of 4500! Would we test 3900 lows.. well I don't know the answer, but hope the chart would foretell...

Nifty : 4700 revisited

Severe correction has gripped markets all over the world. India has been weaker than some of its Asian peers. Is it the end of the rally? Take a look at the chart.

4690-4730 was a tough nut to crack for Nifty and it took 4 attempts to break it convincingly. According to classical technicals this should act as a support on the way down. The way Nifty has been cutting through moving averages it seems only a level support can come for rescue. But even if this fails (while I write US markets are down by over 2%) some kind of "Black Tuesday" awaits us. Monday is a day off (thankfully!).

Bull Case from now on would depend on, when do we get a bounce from these oversold levels. A bounce too little too late would definitely break the back of all bulls.

I recently came across some article which suggested overlapping of 4th wave and 1st wave (for a small period of time) can be expected in Diagonals. I need to get some more confirmation on it. But whatever be the case the equity markets are very precariously poised at the moment.

Nifty : Relief Rally and Consolidation

After today's record selling, which made Nifty reach its target of 4860 (read previous post); many fears have crept in. This may not be the end of correction and we can see lower levels after some rally from oversold levels. Lets analyze why this correction came and how will we get out of it...

I have marked in green the rising wedge pattern, a very strong bearish indication along with negative divergence (also seen in green at MACD). Rising wedge patterns generally mark the end of a 5 wave structure. So strong corrections are expected once the wedge is broken. We saw it breaking on Oct. 22, first sign of things turning for the worse. The other aspect that supported a correction was the closing below 21Day EMA on the same day. (21Day EMA, is considered the make or break level by a bulk of swing traders). Other not so technical reason, being Telecom sector totally breaking down. We do see some weak sectors cracking earlier than the Index.

I have been pointing that the 5 wave structure that I am following from 3919 lows, suggests that we are in the 3rd wave from the 4353 lows of Aug. 19, which ideally is supposed to be the strongest wave. But looking at the MACD (blue arrow) of the 3rd wave, we don't see any new momentum high, that is momentum corresponding to 3rd wave is lower than 1st wave. This indicates that we will end up in the lower part of the band of the projected 3rd wave targets.

And that's exactly what happened, the minimum target of 5165 was overshot by mere 17 points. The other danger of this poor show by 3rd wave is that we can have a deep 4th wave, which otherwise would have been quite flat. So the 4th wave correction may take us to the lower end of the projected target (4865-4760).

Now let us focus on how the correction may look like. The alteration principle says that we may have a flat or triangle correction as the 2nd wave was a zigzag! There are higher chances of Nifty being in a 4800-5000 range for quite some time, with a rectangular or triangular pattern formation. But we should not totally rule out a swift zigzag correction as well.

Whatever be the correction pattern, we should look for two major factors, selling is slowing (positive divergence in MACD) and this correction not going below 4730 (end of 1st wave).

My gut feel is that we should see some relief rally from these oversold levels and then consolidate in a range. As I still feel there is another bout of buying left, I would presume that this range would finally frustrate the buyers and they will give in to their urge. We should see Nifty over 5250 when the 5th wave ends.

Crude Oil : Nearing a Top

Lets have a look at the Crude Oil daily chart. After its steep fall from nearly $150 to $35 one of the Hottest Commodity have made another swift rise to above $80. I have labelled the rally from $35 till now as per EWT. What we see is that wave1 was 20 in length and wave3 was 28. So as per theory we can expect wave5 to reach a maximum of 28+65= 93. The minimum target of $77 has already been achieved and $85 which is an ideal target is not too far.

The other thing to note is that 50% retracement of the entire fall from $147 to $35 is at $91. Which gives us another reason to expect crude to face heavy weather in the coming days if it keeps on rallying.

Dollar Index too is showing signs of bottoming in near term, the prime reason for the Crude Oil's latest upmove.

So the 3 targets to keep in mind if you are an Oil trader are 85, 91 and 93.
Above 93 the wave count stands violated.

Bob Prechter : A scary world is perfect for stocks, and a perfect world is scary for stocks.

This alternating current of ebullience and conservatism goes back to the most basic Elliott wave idea: Bull markets give way to bear markets, and vice versa. What are the essential ways in which bear market moods differ from those of bull markets?

 

Bob Prechter: In bull markets, people focus on progress and production; in bear markets, they focus on limits and conservation.

 

O.K., I can see that. What else?

 

Bob Prechter: Bull markets result in increased harmony in every aspect of society, including the moral, religious, racial, national, regional, social, financial, political and otherwise. Bear markets bring polarization. With that realization, you can predict increasing cooperation in all those areas in bull markets, and increasing conflict in bear markets.

 

It's hard to imagine turning bearish when peace breaks out all over or turning bullish on society in the depths of scary times.

 

Bob Prechter: A scary world is perfect for stocks, and a perfect world is scary for stocks. When the world appears perfect, most investors have their money in the market, and there is little or no buying power left to fuel the uptrend and nowhere to go but down. When it appears scary, stocks are cheap and hold huge upside potential.

 

So people get it backwards.

 

Bob Prechter: Exactly, people consider these to be the events that shape their futures, but they only reflect the past trend of social mood.

 

What is it that people are unprepared for now?

 

Bob Prechter: The bear market will bring back nationalism, racial exclusion, and perhaps even religious conflict. Thinking technically about events, that is, observing what they reveal about social psychology, prepares you for those changes, whereas trying to predict the future from the events themselves leads you to the opposite, and wrong, conclusion. It cannot be stressed enough, because life-or-death decisions can depend upon your assessment. Notice what marks the major bear-market lows of just the last 200 years – the Revolutionary War, the Civil War and World War II. Those were buying opportunities.

Mahurat Day : Minimum Nifty Target Achieved

Nifty reached 5175 momentarily and as per Elliot counts, the minimum target has been attained. (read previous post). Though Nifty opened strong it lost all the gains and closed flat. Nothing in the horizon can be seen to announce the end of the uptrend in the short term and we should hardly make anything out of the 1 hour token trading where institutions are absent. But how many times do we see anything "happen" to break the trend.

As per my opinion we can go higher but the conviction with which I say is lower, and to be honest I will keep my stop loss strict to protect the profits. We should be mentally prepared for correction which can be as deep as 4760.

Here are the levels to watch if we don't go any higher (ideally the target of Wave 3 is 5310).
4985, 4860 and maximum 4760.

I will emphasize that if this short term uptrend is broken here, there are higher chances of a deeper correction (more towards 4800).

Chambal Fertilizer for a quick buck!

Nifty : End of correction?

For last few days we are witnessing an awkward situation. The global markets have been supportive and yet since October 1 we are seeing Nifty though opening in green close with moderate losses. We have seen it drift lower from 5111 the high made on Oct 1 to 4935 on Oct 9 with a low of 4921 on Oct 6.

The reason for this correction while other markets move up, remains very much technical. The upward push lost momentum, as new buyers are not keen in buying at such high levels. As the market is not going up, we see profit booking by existing position holders. Inevitably a level will come where the "cash on sidelines" (if there is more of it) will start rushing in and along with it the "momentum chasers" and take the Nifty to newer highs.

As per Elliot waves we are currently in wave 4 correction inside a larger wave 3 (see chart). The wave 4 target as per the theory should be a minimum of 4907 and a maximum of 4844, though the caveat being corrections need not necessarily meet the minimum criteria when the undertone is very bullish.

So we can expect the markets to dip slightly more maybe to 4900 mostly by short selling as there are some negative sentiments developing in India (telecom and IT being the main culprits), but that should be the end of it in my opinion as global markets are showing strength. I feel we should see some bounce from here which I assume will be the start of wave 5, which have to take Nifty above 5111 and a minimum of 5165 and in ideal condition to 5310.

We have not seen strong momentum which is usually associated with third waves (larger count) till now, could this be the blow out, which most "analysts" are talking about or we still need to wait it.. only time will tell.

Last word : the above assumptions and predictions are valid till the correction ends above 4744. But deeper the correction, lower the upside targets discussed.

S&P 500 : Start of a significant correction ?

Poor economic data have given bulls a shock and all hopes of Dow moving into 5 digits will rest in peace for some more time. Lets take a look into the daily chart of S&P 500 as of October 1st.

The lower trendline was broken though we have not convincingly gone below 21 day EMA. But if we get another down day which is pointed by the futures we will break it. The break from the rising wedge is a strong bearish pattern.

The height of the wedge is 125 points, which should be the minimum target for this leg down, with minor support coming at 975 which is 100 day EMA. If that does not hold we can easily see levels of 925. Which is roughly the target of the rising wedge breakdown. We also see that the index has spent around two months in the range of 875-950, which can act as a support as "value buyers" can get in those levels.

Well only time will tell how severe this correction is going to be. Will the dip get fiercely bought, or it will become a crack.

L & T : more upside possible

As the Nifty is not doing much and while I wait for any significant correction, I tried some "deep dive". While going through major sectors I noticed that the Capital Goods space actually has been very quiet amongst the recent jubilation of Nifty touching and closing 5000 mark.

I went through the charts of BHEL, Reliance Infra, ABB and few other big names in Infrastructure / Capital Goods space, noticing all of them spending time in sideways consolidation. A closer look immediately suggests that they have completed wave 4 correction after making a wave 3 high and now ripe to go higher than their previous recent highs.

Lets check the L&T daily chart for further study. What we see is that wave 3 high of 1700 is followed by a wave 4 low of 1325. One can also see a upside breakout from the triangle at around 1500. The minimum target for which is 1800.

As for the waves; it definitely seems to be a 5th wave starting from the lows of 1325, where we have low participation and negative momentum divergence. Within this 5th wave we should have another 5 wave structure. 1st of which looks to be ending at 1620 and 2nd ending at 1500, look how we get the retracement back to the point of breakout!

The current wave is the 3rd wave and should atleast be as long as 1st wave which gives us a minimum target of 1820 and a more likely target of 2020. May be we get some correction in between which would generate more interest in this counter.

Now the big question is which I am more interested in is what happens to Nifty when L&T having almost 8% weightage moves around 25% from here. And I am sure if L&T moves it will take other Infrastructure / Capital Goods stocks namely ABB, BHEL, Reliance Infra and Siemens along with it which together contributes 13.5% (L&T included).

So will it be a broad based rally where Capital Goods which have underperformed in recent rally participate or will it be Capital Goods shining while others take rest or correct. At times we see sector rotation, which can well be the case and we can see these stocks catching up while Nifty just being in a mildly positive mode.

But one thing which can definitely be said about Nifty based on these stocks is that we are still to see more upside and we are closer to a small rally than any significant correction. I would definitely suggest people to be overweight in this stock than chase price of something which has already made a new high.

Nifty Wave Counts

Lets take a look at the Nifty wave counts as of week ending September 18th. I have taken the lows of previous correction as the start of the new 5 wave structure.

0 = 4353 ; 1 = 4744 ; 2 = 4577
3 = 5003 (possible end of wave 3, if rally continues without correction to a minimum of 4840 this scenario fails)

Taking a look at the chart we see that wave 1 is having a length of 391 points. Wave 2 is of 167 points a 43% retracement, satisfying the condition (between 38 to 78% of wave 1). Elliot principle states that Wave 3 cannot be shortest of impulsive waves and hence wave 3 should have a minimum length of 391 points in this case. Which is taken care as September 17 high of 5003 gives us wave 3 of 426 points.

Now considering wave 3 to end at 5003, (though it may not be the case and Nifty can rally higher without any meaningful correction) we expect corrective wave 4 to take Nifty to a range of 4840 to 4790, and in no case below 4745.
I am forced to believe that 5003 or some higher level very close to it should be the end of wave 3 as we can see strong profit booking near those levels 5000 being a psychological resistance. We see negative divergence in MACD and CMF (shown in chart). Another reason being no decent correction taking place to take the markets strongly higher (corrections are necessary for new people to get in).

Minimum wave 5 target (less bullish scenario):
We get the correction to 4790 or below the wave 5 length becomes 62% of wave 1 giving a maximum target of 5032 in Nifty. I assign this a low probability outcome, as this violates Elliot principles for the larger structure that I am following where a minimum target of 5165 is expected from this 5 wave structure.

Maximum wave 5 target (more bullish scenario):
We get a correction to 4840, and wave 5 length becomes 162% of wave 1 which is 633 points (not possible as in this case wave 3 will become shorter than wave 5). So wave 5 of maximum length of 425 points can be expected, which will take Nifty to 5265.

But what if we do not get a correction, lets discuss it when that happens!!

Reliance : Follow up

The day started with a big bang with nifty touching 5000 after a long time. Though the joy was momentous and soon markets gave up all its gains and closed almost flat. Bulls must have been cursing Reliance for turning the sentiment sour for selling off almost 5% and knocking off around 25 points from the Nifty. What happened today is the big question and even bigger is what will be the impact of today's selling.

I am sure most of the trading softwares must have signaled a "Sell" after looking at today's price and volume action. And its quite evident the stock will be under pressure for quite some time. News is that Reliance management has planned a sale of Treasury Stocks to raise capital. Now why they want to raise so much capital all of a sudden is anyone's guess. It could be that they feel after such a rally the prices have overshot the fair value and its a good time to sell some stocks. Another rumor doing the round is that they need to pay huge amount of settlement in the RIL-RNRL case! Whatever be the issue, we will come to know that within few days.

I had posted something about reliance few days back suggesting that it could be on the verge of a breakout. Breakout it did with decent volumes but after few days of rally it started showing signs of fatigue and today it made a sharp correction. We have seen prices testing support levels often after breakout but it is a sign of a weak breakout and surely one can expect the target to be much lower than calculated. Lets see if it takes support at the trend line drawn in the chart, failing to hold it would suggest a more severe correction and certainly invalidating the break out.

So the best way to tackle it would be play a wait and watch game, if it seems to be holding the support mentioned it should be a good buy and all rumors should be laid to rest. It it keeps falling surely something fishy is going on and it would be advisable to get out of your holdings if you are a short term player.

Bank Nifty : Powering Ahead

After another good day at the markets for the major indices, lets take a look at one of their major contributor; the Banks. I have attached a 3 month chart below, but if you look at its 9 month chart (to include its March 6 lows) I am sure you would be cursing yourself for not having more banks in your portfolio. It has moved from 3300 to 8400 in this period, a phenomenal rise for the symbol of India's growth story.

What we see in the chart is something which is pointing towards another leg of rally. We see a very clear breakout from the ascending triangle formation between July and early September. The breakout points to an ultimate target of 9000 while currently its just under 8400. So we can be bullish on it for some more time.

All the indicators in the chart paint quite a positive picture. The only concern for me right now is that it has become overheated. We should see some correction, which should be healthy and giving opportunity for more participants to get in.

As I am particularly interested in Nifty, and banks being one of the major sector contributing around 17% it would be interesting to see where Nifty goes if the Bank Nifty reaches its target of 9000. A simple calculation which says 600 points in Bank Nifty is roughly 350 points in Nifty, just taking there proportionate levels and assuming both move in perfect correlation it gives Nifty a target of 5300 on Nifty! Of course this is the crudest form of calculation nonetheless it tells us that we are going higher from here if things move as they have been.

Nifty : Rising to Fall ?

After today's rally in Nifty which came out of nowhere; all my correction expectations were thrashed. But after looking at today's chart some hopes were rekindled. I am posting 2 charts today just to see how closely each rally is related to another.

      

The first chart (click to enlarge) talks about the rally we saw in July. I have marked the rally as a 5 wave structure in black. 3 waves up and 2 down and after that the correction in red. What we can learn is that the 1st wave is a very strong one and gives the MACD a big push, so that the divergences reaches a new positive high. We have a correction and another leg up, this time the divergences are lower than the previous. Again there is a correction and then we have the final leg up which is associated with even lower divergences. For all the 3 waves up, the Rate of Change which measures how quickly the stock is moving also decays.

So what we get after a 3 wave up is a nice setup for a 3 push reversal. The correction that follows is atleast 38% of length of the total move up and it can go till 78% depending on how bullish or bearish the set up is.

Now take a look at the second chart. This is the current development in the Nifty. What we see after few days of consolidation and today's rally is that we have a setup where the third and final upside is pending and if it happens with a even lower divergences and ROC, we can say that we are almost at the verge of another significant correction.

If we get few days of rally (ideally not more than 2-3 days) with not much volumes and looking very tentative and somehow manages to touch 5000, be ready for a correction in the range of 250 - 300 points. Remember counter trend moves are pretty fast and furious and should occur in 3 waves.

Nifty : What Next?

I have been tracking Nifty almost second by second and to be frank any 50-60 point move would give me a heart attack!! Last four days have been as dull as it could be for the index. The only achievement it has made is a move over 4800. The bulls are happy that it is staying above critical resistance of 4800 and bears would be satisfied that the much talked about breakout above 4750 has not resulted in any runaway move.

The fact that even after breaching 4750 (which was considered as a major resistance by many "experts") the market has not made any major gain tells us that we have another resistance somewhere where we are. To break the market is buying time staying at the same level or maybe even correct to gather force to break it.

We had a very good chance to give a shot at 5000 on Thursday when Nifty opened almost 70 points up and even reached 4889 but saw tremendous profit booking for the entire day. Technically if we open above a resistance level we should see markets moving further up but that was not the case, so we can say that there is resistance even above 4889. Nifty was also very overbought at that point of time, though it is not the case now.

Take a look at the chart (click on it to enlarge). I pay attention to volumes a lot as it indicates participation and for the past four days we can see it has just been pretty much up there, with a slight hint of hesitation in participation by traders. Surely they still have a fear of heights. The MACD also shows a dip in momentum, which is mainly due to the sideways movement.

I would like to comment on CMF which measures the buying pressure, a high value of CMF points to accumulation. We can also say that strong hands are participating. It was pretty high when the Nifty moved from 4650 to almost 4750, we can again see accumulation of Nifty stocks at those levels. It can act as major support. It is also backed by the 13day and 21day EMA around those levels.

So, what to make of these observations. We see that most of the technical indicators are pointing to some sort of correction atleast to 13day EMA at 4721. If somehow the sentiment changes to a less positive one to 21day EMA at 4671. Lets see if this correction which should be a healthy one materializes or the bulls gain upper hand again. There are hardly any shorts in the market so i dont believe we can go much higher without any decent correction of atleast 100 points.

Nifty : Small Correction impending

After a range bound and lacklustre day, lets take a look at Nifty's Chart. It has been a dull day where nifty moved from 4780 to 4825 just biding time for the next move. Looking at the internals, Reliance was the only stock which added some significant points to Nifty, else we would had a negative closing. As I pointed out in a previous post, seems there has been a breakout in Reliance yesterday and today also it followed up with some nice move. But this nearly 8% jump in 2 days will attract some profit booking sooner than later.

In the charts we see that the momentum is dying down, and with not much support from the global markets, profit booking can be expected. We still have not seen any convincing break of the 4790 fibonacci resistance.

So the levels I would watch would be 5day EMA which comes near 4760, a negative sentiment day can take us to 13day EMA of 4690.

Ideal strategy would be to buy on dips, as we are in an uptrend.

Nifty : Time for some consolidation

After almost a straight line rise, nifty finally showed some profit booking in the second half today. The move from 4580 to 4840 have been associated with negative divergences (see chart). We can safely say that it was a Wave 5 and now we may see some consolidation (ABC). I have pointed how the consolidation may look, on the chart.

Wave A which in my opinion has started should be ending somewhere around 4710 to 4750. 
Wave B can take us back to 4780 to 4820. 
Wave C should end in the range of 4620 to 4720. 


Any move below 4560 should signal that the consolidation has ended and a new 5 wave bearish structure has started. We have 4610 as a major support and should not be violated on closing basis for the uptrend to remain intact.


My earlier posts talk about resistance of 4790, which was broken today on closing basis. Though the last hour movement signals that we still can see this resistance threaten the upside, if we fall below it in near future.

Reliance: Confusion at its fag end

Here is a daily chart of Reliance, the largest contributor of Nifty and Sensex. We see that it has not touched its May 18th high even after over three and half months of trading. To add to it what we also see is that it has been making lower highs and higher lows for all these time, a clear indication that the street is confused on its fair price. The volumes have also gone significantly lower as there is not much of price movement to generate trading interests. A good tussle is going on at a price fulcrum of around 2000.

But this can not go on for ever and the equilateral triangle which is getting formed can break on either side. As per Elliot wave principles triangles are generally formed in wave 4 or in an ABC consolidation after a 5 wave structure. If the triangle we are seeing is in wave 4, then we should see a breakout which should take it above 2500, most probably 2600. If this is an ABC consolidation then things become complex, the break can be on either side and starting a new 5 wave structure. The targets cannot be calculated as calculations are based on the length of wave 1.

In any case, what we can say with confidence is that once the triangle is broken (in any direction) with confirmation of high volumes, we will see strong movement in that direction. As the width of the triangle is around 600 we can roughly calculate the breakout target as 2600 and breakdown target as 1400.

It would be interesting to see where the Nifty and Sensex go if Reliance moves to 1400 or more possibly 2600. In my opinion a 1400 Reliance means the markets have cracked and we are staring at 3500 Nifty, a 2600 Reliance would mean that we are making new highs and 5400 would be the likely valuation.

S&P 500 : Bearish signs developing

Let's take a look at S&P 500 on the charts and try to gauge its future movements. Below is the weekly chart in which I have highlighted the rising wedge pattern. It is a very strong bearish development and materializes more often that not.

The volumes are taking a dip which indicates the uptrend is not having a great conviction. MACD is also showing negative divergence, backing the aspect that the index is being pushed upwards, though it is in no mood to go in that direction. the only saving grace for the upmove is the RSI which is getting stronger with the rise, indicating that we are in a trend. Given the indicators I would conclude that signals are mixed. We may keep rising for some more time, but for sure it is not going to be easy. It's time to be cautious.


As long as we are in the wedge shown above, we can expect to see a tired market oscillating between the two trend lines. In case of an upside breakout, which in my opinion is not the expected outcome, we can see a few strong weeks.


The natural outcome of a rising wedge is a breakdown and the minimum downside is the height of the wedge, which in this case is around 180 points. So a 180 point slide is easily possible whenever the wedge is broken. As we know how US markets drive the world, we can safely say that if there is no violation of the wedge in immediate future we can see trading with positive bias. So for Nifty which is my main concern should also be trading higher from current levels. But the sharp slide on the breakdown of S&P would surely pull down markets all over and we can see Nifty as well break few key supports which have developed in recent weeks.

Tracking Nifty as on September 3

As per my previous post on Nifty's trend where I suggested that we can see slight correction played out pretty much on line. As I write Nifty closed below 4600 on a sluggish day of trade. Coming to the Technicals as they stand today.

We see that the trend line as well as 34 Day EMA lies around 4550, which should act as a strong support. It also represents 38% retracement of the move from 4350 to 4740. If Nifty does not hold 4550 we should get ready for some significant correction. In my opinion, this should not be the case.


We are seeing the selling losing conviction (volumes drying). StochRSI also shows that we have moved away from overbought conditions and another few days of negative biased trading will bring it to oversold level.


In the chart I have labeled Elliot wave counts, without getting into details of that: the expectations out of it is that we should see the current selling end around 4550, the deeper we go below 4550, weaker would be the bull case I am going to describe.


After hitting the support level of 4550- 4380, there should be a strong upward momentum yet again, which would find resistance again at the 4730-4750 level, this time we will break it but find another resistance to cope with at 4790-4800. If the momentum is enough to break the 4800, I am pretty confident that bulls will finally take over and we are going to hit 5000 in a few days time.


The wave counts that I am following makes this upmove a wave 3 of a larger wave 3. And wave 3 are generally accompanied by high momentum. So if things fall in place as per above, we should see few consecutive hundred Nifty points trading days.


So the ideal way to play this would be getting long on dips. The scenario discussed above fails if Nifty closes below 4350.