Going With The 60min Flow!!!
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Just posting an Elliot Wave Analysis of the current market situation.
Sensex generates short--term reversal we were looking for, gains 28% from lows
With PE Ratio touching 2003 lows, last week I wrote, Friday saw the second biggest single-day cut of 1071 points on the Sensex The biggest single-day cut was on was on 21st Jan of this year, after which Sensex made a short-term bottom on the very next day we may expect a similar bounce beginning in a day or two. Position accordingly if such a scenario unfolds.
I further said, can we see a strong support at current lows despite the marginal break of our target area at 9875-8799 ? Since the probability is high, we can look for confirmation of support at the current lows, and see if supportive action leads to a short-term reversal for the Index as it did on 22nd Jan2008. Look for a sustainable move above 9000-mark.
Sensex obliged by bouncing a hefty 2173 points or 28% from Mondays low of 7697. Metals bounced 43%, while Oil/Gas recovered 37%. From their respective lows Unitech recovered 102%, Core Projects 89%, JSW Steel 98%, Nagarjuna Construction 67%, Hindalco 63%, Reliance 50%. The Global markets also provided the necessary help. Dow recovered 17%.
Earlier I wrote, Sensexs immediate support area is at 8799-9875, which matches with the significant lows it made during 2006. Overshooting target is a phenomenon observed at significant turning points, and therefore Sensex temporary dip below our support area is accounted for accordingly.
The action over the week generated two gap-up moves, with Sensex finishing close to the upper end of the falling channel we had been following over the last eight weeks. With two gap-up moves already in place within last week's rally, Index is now preparing to take on the 10K-mark and move beyond the 8-week long falling channel.
Another gap-up from here would be the 3rd gap-up action within the current rally, which will have potential to prove as an Exhaustion gap. Whether it indeed turns out to be so, will be proved within the first three trading sessions of the week.
Sensex has shown strength by rallying beyond two days. All previous rallies within the channel had lasted for only two days. The current rally is also the biggest rally so far in the last eight weeks in terms of magnitude. Further strength would now be shown by crossing the channel.
With the Sensex gaining as much as 28% from its low of 7697 already, it indeed proved as a short-term reversal we were looking for.
The technical position, however, will soon reach the over-bought zone. We may, therefore, consider 10260-10787 area to be maximum upside for the time being, and look for gradual profit-booking at higher levels if required.
In case the rally matures at 10260-787 area, we may see it testing 50% or 61.8% correction levels to the rally, or downsides of about 9000 again. Such a correction may see a formation of higher bottom however.
Remember, we havent seen any falling segment getting fully retraced in faster time so far. Such a correction may give the Sensex a chance to generate such a full and faster retracement.
The Sensex' Weekly chart shows a particular pattern for the current bear phase, at least so far. Sensex shows falling segments lasting for 10 to 11 weeks, which are then followed by rallying segments lasting anything from 4 to 7 weeks.
As per this phenomenon, we are likely to the bottom at 7697 holding till the end of this year, resulting in a positive market for the next 4 to 7 weeks.
Wave-structure wise, as I observed last week, the C leg from 15107 achieved 161.8% ratio to A (from 16632 to 12514). Time-wise, C consumed exactly the same time as A.
Based on the 8-year cycle, since Jan I have been arguing or a 55 to 58% cut from the top. Remember, in the previous 8-year cycle top during 1992-93, Sensex lost 56% from 4546 to 1980. In the next cycle top, the cut was almost 58% from 6150 in 2000 to 2594 in 2001. At Fridays low of 7697, we have already seen a near 63% cut from the top of 21206.
Prior to this, the wave-structure showed us an Extracting Triangle within the bear market rally from 12514 to 15107, which was marked by reduction in rising legs and increase in falling legs. Such a structure was already indicating a severe drop.
From 15107, Sensex has been forming a c leg down. Though we normally expect 5-legged Impulse formation in c wave, the c of Triangle / Terminal / Diametric formations have Corrective label. I am, however, assuming a channeled Complex Corrective in the current c simply because it is helping our trading strategies. The x leg ended exactly at the upper end of the channel.
Time-wise, I argued, such a phase would last for at least 13 months (beginning Jan08), and may require consolidation thereafter, before the next bull phase can begin. As long as Sensex keeps on making lower highs, the bear phase continues. However, while we wait for higher top higher bottom to form, a quick counter rally as a result of support at the current lows can give a short term trading opportunity.
While the value target below 10K has been achieved, the time targets are still to be achieved. Remember, in technical analysis, both time and price forecasts must be achieved. Long-term investors better wait till then.
From the channel perspective, the upper limits for any bear market rally can be seen closer to the upper end of Purple channels, which I have been showing on the Weekly chart above.
The yearly channel, which I used earlier to project 20000 level for Sensex during 2007, was broken when the Sensex moved below 17200. Break of this long-term channel also weighs in favor of the larger bear phase as per 8-year cycle.
FIIs continue to withdraw
The important hallmark of this bear market has been heavy withdrawal by FIIs. The following monthly chart of FII Net Investments shows a clear break of the 14-year long Monthly channel.
I have shown an equidistant parallel on downside, value of which indicates that we may see more withdrawals to the tune of Rs. 30000 crores.
The FIIs withdrawing from equity market has resulted in Dollar outflows from India, reducing domestic supply of the currency for local importers. As a result, since Jan highs, while Dollar appreciated by 26%, the FII net Investment had also reduced by about 21%.
PE Ratio improves from new lows of the decade
The following chart shows PE Ratio plotted for Nifty-50 stocks, as taken from NSEs published data.
The Jan08 top was the same as Feb00 high of 28.47. This is the highest level of PE Ratio at least during the last two 8-year cycle tops. Chart reacted from this level tested Mar07 lows near 17.20. The chart is so consistent that its shows nice technical channels for both up and down cycles.
The recent low of 10.68 was very close to Sensex May2003 lows. This ratio has now smartly recovered to 12.57.
Sensex generates short--term reversal we were looking for, gains 28% from lows
With PE Ratio touching 2003 lows, last week I wrote, Friday saw the second biggest single-day cut of 1071 points on the Sensex The biggest single-day cut was on was on 21st Jan of this year, after which Sensex made a short-term bottom on the very next day we may expect a similar bounce beginning in a day or two. Position accordingly if such a scenario unfolds.
I further said, can we see a strong support at current lows despite the marginal break of our target area at 9875-8799 ? Since the probability is high, we can look for confirmation of support at the current lows, and see if supportive action leads to a short-term reversal for the Index as it did on 22nd Jan2008. Look for a sustainable move above 9000-mark.
Sensex obliged by bouncing a hefty 2173 points or 28% from Mondays low of 7697. Metals bounced 43%, while Oil/Gas recovered 37%. From their respective lows Unitech recovered 102%, Core Projects 89%, JSW Steel 98%, Nagarjuna Construction 67%, Hindalco 63%, Reliance 50%. The Global markets also provided the necessary help. Dow recovered 17%.
Earlier I wrote, Sensexs immediate support area is at 8799-9875, which matches with the significant lows it made during 2006. Overshooting target is a phenomenon observed at significant turning points, and therefore Sensex temporary dip below our support area is accounted for accordingly.
The action over the week generated two gap-up moves, with Sensex finishing close to the upper end of the falling channel we had been following over the last eight weeks. With two gap-up moves already in place within last week's rally, Index is now preparing to take on the 10K-mark and move beyond the 8-week long falling channel.
Another gap-up from here would be the 3rd gap-up action within the current rally, which will have potential to prove as an Exhaustion gap. Whether it indeed turns out to be so, will be proved within the first three trading sessions of the week.
Sensex has shown strength by rallying beyond two days. All previous rallies within the channel had lasted for only two days. The current rally is also the biggest rally so far in the last eight weeks in terms of magnitude. Further strength would now be shown by crossing the channel.
With the Sensex gaining as much as 28% from its low of 7697 already, it indeed proved as a short-term reversal we were looking for.
The technical position, however, will soon reach the over-bought zone. We may, therefore, consider 10260-10787 area to be maximum upside for the time being, and look for gradual profit-booking at higher levels if required.
In case the rally matures at 10260-787 area, we may see it testing 50% or 61.8% correction levels to the rally, or downsides of about 9000 again. Such a correction may see a formation of higher bottom however.
Remember, we havent seen any falling segment getting fully retraced in faster time so far. Such a correction may give the Sensex a chance to generate such a full and faster retracement.
The Sensex' Weekly chart shows a particular pattern for the current bear phase, at least so far. Sensex shows falling segments lasting for 10 to 11 weeks, which are then followed by rallying segments lasting anything from 4 to 7 weeks.
As per this phenomenon, we are likely to the bottom at 7697 holding till the end of this year, resulting in a positive market for the next 4 to 7 weeks.
Wave-structure wise, as I observed last week, the C leg from 15107 achieved 161.8% ratio to A (from 16632 to 12514). Time-wise, C consumed exactly the same time as A.
Based on the 8-year cycle, since Jan I have been arguing or a 55 to 58% cut from the top. Remember, in the previous 8-year cycle top during 1992-93, Sensex lost 56% from 4546 to 1980. In the next cycle top, the cut was almost 58% from 6150 in 2000 to 2594 in 2001. At Fridays low of 7697, we have already seen a near 63% cut from the top of 21206.
Prior to this, the wave-structure showed us an Extracting Triangle within the bear market rally from 12514 to 15107, which was marked by reduction in rising legs and increase in falling legs. Such a structure was already indicating a severe drop.
From 15107, Sensex has been forming a c leg down. Though we normally expect 5-legged Impulse formation in c wave, the c of Triangle / Terminal / Diametric formations have Corrective label. I am, however, assuming a channeled Complex Corrective in the current c simply because it is helping our trading strategies. The x leg ended exactly at the upper end of the channel.
Time-wise, I argued, such a phase would last for at least 13 months (beginning Jan08), and may require consolidation thereafter, before the next bull phase can begin. As long as Sensex keeps on making lower highs, the bear phase continues. However, while we wait for higher top higher bottom to form, a quick counter rally as a result of support at the current lows can give a short term trading opportunity.
While the value target below 10K has been achieved, the time targets are still to be achieved. Remember, in technical analysis, both time and price forecasts must be achieved. Long-term investors better wait till then.
From the channel perspective, the upper limits for any bear market rally can be seen closer to the upper end of Purple channels, which I have been showing on the Weekly chart above.
The yearly channel, which I used earlier to project 20000 level for Sensex during 2007, was broken when the Sensex moved below 17200. Break of this long-term channel also weighs in favor of the larger bear phase as per 8-year cycle.
FIIs continue to withdraw
The important hallmark of this bear market has been heavy withdrawal by FIIs. The following monthly chart of FII Net Investments shows a clear break of the 14-year long Monthly channel.
I have shown an equidistant parallel on downside, value of which indicates that we may see more withdrawals to the tune of Rs. 30000 crores.
The FIIs withdrawing from equity market has resulted in Dollar outflows from India, reducing domestic supply of the currency for local importers. As a result, since Jan highs, while Dollar appreciated by 26%, the FII net Investment had also reduced by about 21%.
PE Ratio improves from new lows of the decade
The following chart shows PE Ratio plotted for Nifty-50 stocks, as taken from NSEs published data.
The Jan08 top was the same as Feb00 high of 28.47. This is the highest level of PE Ratio at least during the last two 8-year cycle tops. Chart reacted from this level tested Mar07 lows near 17.20. The chart is so consistent that its shows nice technical channels for both up and down cycles.
The recent low of 10.68 was very close to Sensex May2003 lows. This ratio has now smartly recovered to 12.57.
Dear Saint,
I had posted here couple of months back that this system that you have taught us has helped me recover part of my losses incurred earlier over a period of an year+.
I am happy to inform you that as of date I have recovered the entire loss and now seeing additional profits. I actively trade intra-day mini flow too and that has helped me add to profits.
I am not regular in posting but always check this thread. I am sure there are many more who are silently making profits using this method.
Your efforts are exceptional. Thanks very much!!
God Bless You!!
Regards
Venkat
I had posted here couple of months back that this system that you have taught us has helped me recover part of my losses incurred earlier over a period of an year+.
I am happy to inform you that as of date I have recovered the entire loss and now seeing additional profits. I actively trade intra-day mini flow too and that has helped me add to profits.
I am not regular in posting but always check this thread. I am sure there are many more who are silently making profits using this method.
Your efforts are exceptional. Thanks very much!!
God Bless You!!
Regards
Venkat
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