weekly technical analysis 23rd june 12

7/28/2019 Weekly Technical Analysis 23rd June 12

1/20


2/20

Weekly Technical Analysis

June 25,2012

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

Sensex trades volatile near 200-day EMA, ends flat for the week. Pro-Euro parties win in Greek elections. RBI disappoints, keeps rates unchanged. Fitch lowers India's outlook to negative from stable. Advance-tax payment grows a mere 4.9% in Q1. Rupee drops to a new low against Dollar, breaches 57-mark. Market pins hopes on the new FM replacing Pranab Mukherji.

BJP back Sangma, but JD(U) and Shiv Sena back Pranab for President's office.

CCI imposes Rs.6300-cr fine on 11 cement companies for cartellisation.

Crude drops to 18-month lows. Gold hits a new all-time high. Govt plans policy measures to strengthen the Rupee.

Top Stories of the Week

00-day EMA proves crucial for the 2nd week running

ast week we discussed, since we are now moving closer to the 200-day EMA levels, the necessary caution may bexercised, especially in view of the RBI policy to be announced on the first dayof the Week The Mar-Apr lows and 20ay EMA both are at around 17000-100 (Nifty 5170-5200). Post RBI policy we may watch if the Index strengthens to closeeyond this area or reacts lower for creating the 2

ndwave 2

ndshould not correct much more than 61.8% of the 1

stwave

ensex opened with a 150-pt gap-up on Monday. However, our caution paid off. From its opening highs of 17110 (Nifty

190), Index reacted a hefty 474 points (Nifty 148 points) on the same day after RBI policy. For the rest of the week, Indetruggled to hold Mondays sell-off lows, and finished flat for the week, only a marginal 23 points (Nifty 7 points) higher.

he Capital Goods and Healthcare Indices outperformed, both up nearly 2%, but IT and Dollar-based indices came underressure as Dollar strengthened to a new high against Rupee.


3/20

he action proved too volatile for directional traders, at the end of which Sensex formed a High Wave on its Weekly chart, w

igher high-low compared to previous week, and a larger lower shadow at its bottom.

he activity during the last two weeks can be roughly enclosed in an upward-slanting parallel channel, as drawn on theharts, which is testing the crucial 200-day EMA on the upside.

rading-wise, we may take a ranged approach for the time being, perhaps until the Index is able to decisively break beyond theGrey channel shown.

After the RBI policy last Monday, when the Index tanked 474 points intra-day after its opening surge above the 200-day EMA,we've seen the Index holding Mondays low for the rest of the week.

tructurally, however, since Mondays fall retraced the last rising segment from previous Thursdays low of 16659 (Nifty048) to last Mondays high of 17110 (Nifty 5190) in faster time, it is possible that 2

ndof c may have begun from last

weeks high.

hough we cannot confirm the existence of2nd

until the weakness continues for more than couple of days, as we argued lastweek, one may note that corrective phases can develop sideways, in an upward-slanting way, and even turn out to beIrregular in nature.

After the strong move in the first week of the current rally, from 4th

Jun (15749/4770) onwards, market has moved in an upwardanting sideways range for the next two weeks, respecting the crucial 200-day EMA on the upside.

Corrective, non-trending phases usually consume more time, and practically tire out the market players. Such phases,


4/20

owever, form a major part on the chart. Skilled players would wait for the next trending phase, or concentrate on stoharts which may be trending in the meanwhile.

the assumption that 1stwave of the current rally ended at last Mondays high of 17110 (Nifty 5190) is correct, then 2

ndhas so

onsumed only 4 days against 10 days consumed by the 1st.

his could mean we may have to allow at least 6 more days for the completion of the 2nd

wave. This is based on theEoWave principle that corrective phase should usually consume more time than the move getting corrected.

As we pointed out last week, if we are indeed into an Impulsive environment since 4th

Jun, the 2nd

wave should not correct mmore than 61.8% of the 1

stwave. So far, it has retraced hardly 38.2% of the 1

st.

On one higher degree, we assumed larger D leg began from Dec11 (wave-count-wise from the 9thJan12), and the same may

eveloping as a Flat. Its a leg was a channeled Double Zigzag till Feb12, and b was a channeled Complex Corrective encloDiametric formations.

Also, b corrected a by 80% price-wise, and by 161.8% time-wise. From 4th

Jun low of 15749 (Nifty 4770), Sensex is assumee forming c of the Flat, which should be the last Impulsive wave of a 3 -3-5 structure inside the Flat.

he 1st

rally from 4th

Jun had retraced the last falling segment inside b in faster time, which justified our assumption of c of Dpwards. We initially targeted it to achieve 16750-17000 levels. The Sensex has gained as much as 9% up to last weeks high 7110, and is now dealing with the crucial 200-day EMA. We may follow a wait and watch approach for the time being.

hough c of a Flat could achieve Fibonacci proportion with a leg, anything from 38.2% to 261.8%, price -wise andme-wise, normal expectation would be a 100% ratio.

he c leg should develop as an Impulse (label 5 segment), with internally 5 segments, to be labeled as 1-2-3-4-5. Currentlyre suspecting Sensex is into 2

ndwave of this Impulse.

Once 2nd

gets over, 3rd

would move further higher, and can be bigger or smaller compared to the 1st, depending on whether the

would ultimately develop as 3rd

Extension or 1st

Extension Impulse.

Technical readings carried forward from previous weeks are shown in italics. Readers can easily identify the new arguments g

n regular font]

The 1ststage of confirmation that we are indeed into impulsive c of D would require upside break of the 15-week channel dra

round b. By cro ssing the channel , the 1ststage of conf i rmat ion is in place.

The 2nd

stage conf i rmat ion wo uld requi re complete retracement of the 2ndcorrective inside b, i.e. a move above x,

nd that too , in faster time. This is sti l l awaited.

Referring to the larger-degree structure, we are assumin g the 14-month fall from Jan08 to Mar09 as A of a large 7-leggeDiametric. The 20-month rally from Mar09 to Nov10 is assumed as its B leg.

The 14-month fall from Nov10 to Dec11 was labeled the C legof the larger Diametric, which was a well-channeled ComplCorrective involving two equal-sized correctives.

From Dec11, we are into the D leg, which is still on, developing as a Flat.The rally from Dec11 to Feb12 was labeles a of D, and the same was a well-channeled Double Zigzag, wh ich carr ied a pattern impl ic ation of about 80%.

While the orthodox Wave Theory gives importance to 61.8% retracement level and calls it a Golden Ratio, NEoWave Theoon siders 80% also as another impo rtant retracement level, especial ly after channeled mo ves.

s the chart below depicts, since Nov10 it has been generally useful to consider 61.8% to 80% retracement area as crucor terminat ing correct ive phases. Would i t w ork th is t ime as wel l ?


5/20

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

th

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

Once 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 higher degree C leg from Nov10 downwards ended on 9thJan12 as a Double combination

This leg was also well-channeled, and enclosed a Neutral Triangle (from Nov10 to Jun11) and Contracting Triangle (from Julo Jan12).

s we also observed, the 1stand 2

ndcorrectiv e were exactly equal price-wise, both m easured almost exactly 3800 Sens

oints. This discussion was chartically presented on the Weekly chart of Sensex given below.


6/20

By NEoWave logics, 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 po tential to be marked as D lemuch larger Triangle or Diametric from2008. This option was preferable because C leg from Nov10 was not an

mpulse. Non-impulsive C leg could only be part of a larger Triangle or Diametric.

nside this, the larger A leg was from Jan2008 to Mar2009. The B leg was from Mar2009 to Nov2010. The C leg cam edown from Nov2010 to Dec2011, as a channeled fall (Complex Corrective) with two equal standard correctives.

While A and B were equal-sized price-wise, C achieved time-equality (14 months) with A. The long-term Diametric picturwas shown on the chart below.


7/20

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 Dec2011, as a channeled fall (Complex Corrective) with two equal standard correctives.

While A and B were equal-sized price-wise, C achieved time-equal i ty (14 mon ths) with A . The long-term Diametric picturwas shown on the chart above.

y NEoWave logics, D leg of a Triangle can retrace min imum 50%, or ideal ly 61.8%, of the C leg. The 50% level was at8123. So far, D leg has r etraced C by abou t 57%.

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

One may also note that the D leg during 1996-97 corrected 98% of C, and internally developed as a Flat, wherein b hetraced a completely.

We can see both the D legs as m arked in Purp le squares for the compar ison. The current meandering ph ase of themarket may be because market is forming D leg, which is the middle, Contracting portion of the larger Diametricormat ion.

Yearly lows

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


8/20

s the past instances would s how, once the year ly low gets broken, a min imum of 20% cut from th e low has been a u

henomeno n, though g radual ly. A 20% magnitud e reduced from 15652 wou ld calculate to abou t 12500 for Sensex.

This leve l matches wi th th e huge gap-up act ion (refer to Weekly chart d iscussing 32-week cycle) seen during the 200

The chart g iven below sh ows equid is tant para l lel l ines enclos ing the development since Nov10. Further, it shows howSensex respected most of i ts important lows as resis tances la ter.

Sensex has now r ecovered a hefty 9% exactly from this level.


9/20

2-Week time cy cle

The development since Mar09 has followed a 32-week tim e cycle, as shown on the chart below.

This had ra ised a poss ib i l i ty that an important low was may be form ed around 20thAug. Sensex respond ed by hi t t ing

o t tom on 26thAug.

This also ra ised the pos sib i l i ty of an upw ard/s ideways phase that could su rv ive for 32 weeks from Aug11, and end ein 4

thFeb12 or 31

stMar12, developing as a ranged movement like the Left Shoulder. The upward phase ended during

Feb12 as per this cycle.

Going by the structural possibilities from this cycle, i t was suspected that Sensex could be forming an e leg of a possiblExtracting Triangle, which would remain smaller than the c leg. The e leg did remain smaller as suspected.

s we already know, Extract ing Tr iangle is a pattern w hich sho ws smal ler ral l ies and big ger drops. Thus in one directionhows e < c < a, and in the opposite direction, it shows d > b.

On one higher degree, Extracting Triangle (from Mar09) would make up the larger B leg from Mar09 lows of 8047, whicorrect ing the 14-month long A leg from Jan08 to Mar09.

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


10/20

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

bove 18000, Right Shoulder become bigger that the Left Shoulder , which m ay appear re ject ing the Head & sho uldersExtracting Triangle argument. However, the 32-week time cycle also match es with the 2-year cyc le (already dis cussnd m ay therefore be watched.

The Sensex was seen testing the Neckline shown on the chart, which did prove crucial, as Sensex bounced 9% fromhe Neckl ine.

Al l major top s are characterized by 30% drop from the top value. This is no rm al not only ins ide a bear phase, but isommo nly seen even inside a bul l phase too. The 30% taken out from the cur rent top value on Sensex (21109) wou ld

ess th an 14800.

The total loss s o far, from th e high of 21109 to 15425, measures arou nd 28% so far. However, on B SE Small-Cap andMidCap Index, the loss from 2010 high does measure more than 30% .

Overal l , i t was argued mu ch earl ier, that we wou ld see a topp ing form ation spread ov er 2-3 mo nth period begin ning

Oct10. This played out well as suspected. Indeed, as was observed, 60% of stocks topped out during Oct10 itself, amany have al ready sh aved off muc h m ore than 30%, though Sensex i tse l f shaved off only 28%.


11/20

Comparison 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 bef o re the hf 21206 was hit on Sens ex. This was also an extremely volati le periodof nearly two months, just before the market actual

opped out.

The followingchart of 2008 period shows two equidistant parallel channels. The Sensex broke above the original channd achieved an equidist ant height at the upp er paral lel , before reacting low er into a bear phase.

One may observe the volatile development once it reached closer to the upper parallel. Inside this volatility, the market facedumber of sell-offs beginning Oct07, before it finally topped on 8

thJan08.


12/20

Asimi lar i ty can be drawn for the 2010 top formation with the developments of 2008, as shown below.

Sensex was seen testing the low er Blue paral lel , from where it boun ced recently.


13/20

450-point Grid chart for the Sensex

ensex has been fol low ing a Grid of 2450-2500 points since 2008. These Grids are shown on the Weekly chart of Sensexelow. One can find a bottom or a top getting formed at each of the Grid levels.

See how heavy damag es occu rred almos t exactly from the Grid level at 17800. The next Grid level around 15300 is

roving su pport la te ly .


14/20

Our markets, remember, has seen mu lti fo ld ral l ies previously , each time con tinuin g for abou t 4 (four) years, after which

sual ly enters a m ul t i -year consol idat ion phase. In other words, long-term has always meant 4 years in Indian conte

Remember, Sensex rallied11-fold from 390 (Mar88) to 4546 (Apr92) in four years, after which itcon sol idated for 11 yearsrom 1992 to 2003.

n 2008, it completed another 4-year rally from 2003, during which Sensex rose 7-fold from 3000 levels to 21000. It m aow consolidate for 7 year, beginning 2008, preferably forming as a Triangle or Diametric.

We explained that the 14-month fall from Jan08 was a Triple Combination A legof a large mu lt i -year con sol idation .orrective phase beginning Mar09 retraced about 99% of the previous fallfrom 21206 (Jan09) to 8867 (Mar09), (which

abeled as a Triple Combination). The longer t ime requi red w hi le ral ly ing is sym ptomat ic ofits corrective label of B.

The rally from 8047 (actually beginning at 8867) was, therefore, considered as the B leg. The next leg downwards wo

e labeled as C.Such a-b-c development since Jan08 would be considered part of the 2

nd

wave of wh at appears asrob able Terminalbeginning 2003.

Even though we saw the market reaching levels above Jan08 highs, the multi-year cons ol idation is expected to shapke a large decade-long Diametric, looking similar to the consolidation we saw from 1992 to 2003. Our trad ing/investmentra teg ies should be designed accord ing ly .

The suspected corrective phase beginning Jan08 would be the 2nd

wave with in the larger 5thwave. This 5

thwave is

uspected to be forming as a Terminal due to absence of impuls ive behavior in i ts in terna l 1stwave. The Terminal conf


15/20

when the Sensex drops below the 2-4 line of one higher degree.

One may see the Yearly chart in Appendix, which shows the 2-4 line and its values for the next three years. Remember, Termevelopm ent usu al ly violates the 2-4 l ine.

The Sensex is assumed to be under the influence of a large 8-year cycle ever since its birth. As shown on the chart below, '19

was the beginn ing of 8-year long bu l l -run ti l l '1992. In our Super-Cycle Degree count, shown on ASA Long-Term chart undeparate paragraph, weve considered 1984 as the beginning point for the most dynamic 3rd wave.

The next two important turn ing points occ urred exact ly 8 yearsther eafter, in '1992 and '2000. Both these turning points wmarked by stock market scams, because of which, the leaders of the rally had extremely difficult time later. For example, ACC,eading stock of '1992 bull market, remained below its highs till end of '2004. Similarly, the IT stocks, which were leaders of '20ally, lost as much as 90% of their top valuations by the year '2003.

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

n the previous 8-year cycle top dur ing1992, Sensex lost 57% from 4546 to 1980. In the next cycle top, the cut was almos8% from 6150 in 2000 to 2594 in 2001 .

We had, accordingly, targeted sub -10k levels for Sens exprice-wise during 2008-09, and a minimum of 13 months in to behase, time-wise. The price-time targets were achieved as Sensex dropped 63% from 21206 to 7697. The yearly channel, shoelow, which was used earlier to project 20000 level for the Sensex during 2007, was broken when the Index moved below 17reak of th is long- term channel a lso weighed in favor of a larger correct ive phase fo l lowing th is 8-year cycle .


16/20

ppendix : Lo ng-term s cenar ios for Sensex

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

The first one assumes that a large Triple Combination corrective, beginning Sep'1994 got over in Oct'2005 at 7656. The lastorrective within this Complex Corrective phase formed as a "Non-Limiting" Running Triangle. This has been my preferredcenario for many years, which I had assumed to be under development since I began long- term forecasting during 1997-199

This one was the basis of Forecast for the 21stCentury article published in Business Standard (which can be read on

ivekpatil.com).

This scenario also combines well with the traditional channeling technique. Sensex followed a parallel channel for 11 long yearrom Apr'1992 to May'2003. As I had shown, if one projects the width of this channel on upper side, such a projection also gave0000 as the minimum target. This forecast was achieved. This scenario is shown on the chart given below :

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

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

rdwas an extended leg, whi

chieved exactly 261.8% ratio to the 1st

on log scale. The Sensex is now forming its 5th

Wave, and the same is likely to developTerminal, because its lower-degree 1

stwave since May03 developed as a Diametric (a corrective structure rather than an

mpulse).

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 valwise, and 261.8% time-wise, as shown below.


17/20

Since 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 woule extended waves. This scenario is shown on the the chart given below :

Development from May03 is a 7-legged Diametric formation, marked as a-b-c-d-e-f-g. It is called "Diametric" because it combinwo Triangular patterns, one initially Contracting up to the "d" leg, followed by an Expanding one. The contraction point is theg, and the legs on either sides of it tend to be equal. Accordingly, "c" and "e" were equal in "log scale", both showing about 60ains. Similarly, "g" was equal to "a", both showing about 115% gain.


18/20

.

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

eg, larger 5th

could be developing as a Terminal. Since 2008, we are into its 2nd wave, which could continue to develop over 8ears from 2008.

The "Double Extension" scenario was also shown on following ASA Long-term Index (chart below). I've created this chartombining Index compiled by a British advisor (from '1938 to '1945), RBI Index ('1945 to '1969), F.E Index ('1969 to '1980) and

Sensex (thereafter till date).

The wave-count presented on ASA Long-term Index favors the alternate wave-scenario discussed above. The labels show thamarket is into the lower-degree 5th of the SC-degree 3

rdor 5

thwave. If a "Double Extension" unfolds, Sensex could be projecte

chieve even 50000+.

break of 2-4 line would confirm the Terminal development inside the 5th, and would therefore, restrict the upsides to much lo

evels than 50K, but end surely above 21000.

f the 5thprov es to be a Terminal, one larger-degree label of 3

rdwi l l have to change to 5

th, because only a 5

thof the 5

th

e a Terminal. The Super-Cycle-Degree marking f or 1stand 3

rdshown , would then change to 3

rdand 4

threspectively, a

hown in Whi te.


19/20

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


20/20

weekly technical analysis 23rd june 12

Documents