Weekly Technical Analysis 12TH Nov 2013

8/14/2019 Weekly Technical Analysis 12TH Nov 2013

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Weekly Technical Analysis1 Nov 2013

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

Sensex loses after a new all-time high on Moorat Day, ends 2.7% lower.

Goldman Sachs upgrades India to "marketweight" from "underweight".

Dollar-Rupee recovers to 5-week high levels.

Twitter shares jumps 90% on debut.

Dow hits a new all-time high.

Top Stories of the Week

ensex fails near '2008-10 highs, loses 2.7% -Watch 20493 (6079) as crucial

Technical readings carried forward from previous weeks are shown in italics. Readers can easily identify the new argumentswhich are written in regularfont]

ast week we discussed, break above 2008 highest levels opens up certain structural possibilities break could beonsidered as F leg of the larger 7-legged Diametric formation since 2008 onwards if the Sensex strengthens above

2008-10 highs, consider the current up-move as the 3rd

of the Terminal ImpulseIf, however, the Sensex fails to showsuch strength, we can maintain the current assumption that the rally is only an x wave inside E, and is perhapseveloping as a 5-legged Extracting Triangle We have been taking due care, remained in a trading mode because a sucally could prove trickya slower rally is an indication that Bulls may be tiring out

he Sensex opened gap-down below the Bear candle of Moorat session. Down 373 pts on Wednesday, it recovered back to thap-down area on Thursday. However, unable to cover the gap, it reacted lower once again and finished with a net loss of 57ts or 2.7%for the week. Considering Moorat session as part of the week, it formed Downward Bar Reversal for the weend

time in 3 weeks.


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he broader market outperformedhowever. While the BSE Small-Cap was up 1.25%, the Mid-Cap Index added 0.5%. Secto

wise, the IT stocks fared better, IT Index up 1.5%. The Consumer Durable and Bank Index both lost over 6% each.

ncluding Moorat Session, the week made a Higher High, but a Lower Close. Technically, such an action comprises aDownward Bar Reversal (DBR), a bearish pattern. Follow-up weakness and close below such a candle would give further -vendication.

Remember, a similar pattern was formed during the week ended 25thOct, but lacked bearish follow-up in the next week.

owever,occurrence of such a pattern in quick succession, twice in three weeks, indicates profit-booking at higher levnd bears attempting to take control of the market .

he Sensex represent few heavyweight stocks. The broader market is outperforming. Therefore, +ve opportunities may still bevailable in individual stocks ad sectors.

Despite all that, based on the slower nature of the Oct rally, we suspected it to be a Sucker Rally , and argued last of tuyers could be forced to buy in the market that makes new high. While Sensex did hit a New High, Nifty did not.

tructurally, we suspected that the slower Oct rally could be c -leg of the 5-legged Extracting Triangle (ET) pattern fAug13 onwards. The c-leg could achieve only 61.8% magnitude compared to a-leg (Aug-Sep rally) in 150% time.

his Extracting Triangle was to be marked as x inside a still -forming E leg from Jan13. As was argued,Ext. Tri. would confwhen d-leg fall would become larger than the b-leg fall, i.e. when Sensex drops below 19845 (Nifty 5900).

We had decided to consider bullish structural possibilities, i.e. this rally being either F leg OR breakout from Triangle,


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nly when we see the action strengthening further and holding above 20 08-10 highs. So far, it hasnt.

The larger Diametric possibility from 2008 onwards was shown on the chart below :

was argued that 7-fold rally from 2003 to 2008 would require a multi-year con sol idationto digest the excesses createduch a rally. As was argued, i f the mu lt i -year con sol idation achieves 161.8% time ratio to th e ral ly, i t cou ld end on ly afte2015.

However, by NEoWave, the conso l idation ph ase has to consume a time greater than the ral ly. Against the 56-month rallyrom May2003 to Jan2008, Sensex has already completed 67 months consolidating from Jan2008 to Aug2013.

Having seen this, we raised the question if the consolidation from 2008 onwards is now completed as a 5- legged Trianinstead of 7-legged Diametric), as shown on the chart below :


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On the super-cycle degree, we considered a Terminal development since 2003 onwards . The 2003-2008 rally was inter

marked as a corrective pattern (Running Diametric).

The Terminal was suspected because i ts 1stwave from 2003-2008 had a corrective label. (In a normal Impulse, 1

stwav

hould have Impulsive structure).

lso, in a Termin al, 2ndwave can be Triangle. (Inside a normal Impulse, 2

ndwave cannot develop as a Triangle, only 4

thcan)

Under the circumstances, if the Sensex now holds and indeed strengthens above its 2008-10 high s, we wil l be forced toonsider the current up-move as the 3

rdof th e Terminal Impulse, as per the Greenlabels shown below :


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f , however, the Sensex fa i ls to shows any such strength, we can mainta in the current assumpt ion that the ra lly is on l

x waveinside E, and is perhaps developing as a 5-legged Extracting Triangle, as per the labels shown on the initial Daily ch

We had observed much earlier that ever since May13, Sensex could never create more than 4 Bull candles in a row. Eveast rally up to Moorat Session comprised of 4 Bull candles only, after which Sensex has been duly reacting lower.

owever, after losing 720 pts (Nifty 222 pts) in 4 days, the starting point of the last segment of rally, at 20493 (Nifty 6079),ot broken so far.A faster retracement of last segment of rally inside c-leg would have confirmed end of c-leg andeginning of d-leg.

With lower High-Low being made everyday, the existing bias is -ve, and would remain so until the action is able to form a Highigh-Low. Till that actually happens, we may assume a -ve bias, and that bears are in control.

olding 20493 (6079) would maintain a higher high and higher low on the Daily chart. So, we need to watch this level asrucial in the short term. That is because a slower fall could help open +ve options whenever Sensex is able to holdrevious days low, and indeed strengthen and end above previous days high .

ince the oscillator is reaching oversold zone after last weeks fall, though bias may be -ve, we may tread carefully for 2-3 da

ven if the fall hasnt generated the faster retracement of last rising segment inside c-leg, we may not give up assumixtracting Triangle development from Aug13. In an Extracting Triangle, the d-leg can be a complex and tricky affair. Tonfirmation of the current fall being d-leg would now come when it becomes larger than the b-leg.

An Extracting Triangle is a 5- legged pattern with ral l ies gett ing sm al ler and drops b igger. Extracting Triangle format io


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on firms if c-leg remains sm al ler than a-leg, and th ereafter d-leg turns b igger than th e b-leg. The e-leg coming next woue its last leg, and faster dow nside retracement of the e- leg w ould co nf i rm the end of the Extract ing Tr iangle.

y convent ional Technical Analys is , an Extract ing Tr iangle would be seen as a Head & shoulders top reversa l format i

with its Head at the top of c-leg, and Neckline near the bottoms of b and d legs.

n extracting triangle could also be seen as a distribution pattern. It shows bulls losing power gradually as they are ablorm only smaller rallies, and are confronted with bigger drops. [e < c < a and d > b].

The larger quest ion to ask wo uld be i f the last buyer has bought in to . Top cannot form un t i l he has. In order to suck in

ast buyer, NEoWave does not rule out tricky trade, including a suckers rally, at the top under its Exception Rule. may watch out for that.

Lower Top Lower Bottom forming on the Daily Close-Only chart is still awaited as further -ve sign, which would indicate a faltructure as per Dow theory.

An ideal suckers rally usually involves making a New High.As we can be seen on the chart above, Sensex moved highan its 1992 highs during 1994 and 1997, but reacted by over 30% both the times .

ater during 2000, it broke 1992/1994/1997 highs, by as much as 1500-1600, only to lose 58% later. After a corrective phase 2000 to 2003, Index broke 2000 h igh by 100 pts, but even then shaved off 30% before the next rally could take place.

This happened b ecause the 11-year long 1992-2003 phase was a mult i -year corrective ph ase correcting t he precedingold rally from 1988 to 1992.


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We had argued that m ul t i -fo ld ra l l ies requi re mu l t i -year consol idat ion phases to absorb the excesses du r ing the m ul t io ld ral l ies.

Since the Sensex multiplied 7 times during 2003 to 2008, we argued it could require a multi-year con sol idation , probasting 7 years from 2008, and such a consolidation would, accordingly, end only after 2015.

The basic NEoWave requirement is that such a correct ive phase should c onsum e more t ime than the move i t isorrect ing. The 1992-2003 corrective phase con tinued fo r a time-ratio of 261.8% to the preceding 4-year rally from 19o 1992.

s per Wave Theory, a correctiv e phase sh apes up as 3-legged Flat/Zigzag, 5-legged Triangle or 7-legged Diam etric(wasically combines 2 Triangles).

The current phase from 2008 onwards iscorrectin g the 56-month move from May2003 to Jan2008. It already hasont inued for 69 monthsfrom Jan2008 till now, i.e. more time than the move it is correcting.

The quest ion now is whether the correct ive phase would end as a 5- legged Tr iangle , OR wou ld i t con t inue for 2 more

nd form as 7-legged Diametric.

t a minimum level, a move above 2008 highs would be required to justify and modify the corrective phase from 2008nw ards from 7-legged Diametric to a 5-legged Triangle, where E ended at Aug13 lows.

s was shown on the chart below, al l the up-down legs from Jan13 to Aug13, except b, consumed exactly 20-25 days

As per VPs observational rules, all the legs, except b, of a 7- legged Diametric tend tow ards time-sim i lar i ty. Indeed, everse logic, when legs begin to be similar in time, the structure is more likely to form as a Diametric.


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On one higher degree, we had observed all the legs, except b, consumed about 13 months since the year 2008.

s was shown on the chart below, the fall from Jan08 to Mar09 was 13 months, and the same was labeled A of a large 7-leggDiametric formation. The B leg from Mar09 to Nov10 consumed 20 months. As argued, B leg can different time-wise.


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This long-term picture was published on 6thFeb12. TheDiametr ic assum pt ion also c ompared w el l wi th the 11-year form a

reviously seen during 1992 to 2003.

The question, now, remains if we continue with the Diametric assumption or complete the post- 2008 development as a 5-leggTriangle. As we have been explaining, we can open p ossib i l i ty of ending th e phase as Tr iangle only i f w e see strength

bove 2008 high of 21207 (Nifty 6357).

The market is being mov ed mainly on a/c of FII buy ing heavyweigh ts selectively, even as many stocks have been tradingear previous lows in the broader market.

Despite FII buying in the last five years since 2008, the Sensex has not been able to cross its 2008 high so far.

How rel iable is the FII Net Investm ent data com ing fro m SEBI is anoth er question . We general ly see the inflated figure

FII buying matching with DIIs selling figure. However, above observation is made assuming the data from SEBI isorrect.

The disparity between Sensex and broader market was shown on the comparative chart below :


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While the Small-Cap Index broke below its Dec11 lows, and is now attempting to recover above the same, the Sensex itsel f i

ound test ing at the upper end of the channel shown on the fo l lowing ch art:


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This year, Sensex has m ade severa l at tempts to break the upper end of th e channel shown above, but each time it react

ower. In case +ve opt ions, Sensex m ay make another at tempt towards the up per channel , but the m ove could st i l l be f the x.

The larger struc tural +ve scenario can open only i f th e Index breaks / sustains abo ve this chann el. I f we continu e thergument for mul t i -year co nsol idat ion phase, as expla ined previously , such a move could m ean larger E ended in 8

mon ths and F is opening.

t was argued th at after a 7-fold rally from 2003 to2008, Index m ay form a 7-year long consolidation phase from 2008nwards, which could end only after 2015, which would achieve 161.8% time ratio with 2003-2008 rally.

To consume the requi red large amoun t of t im e, we thoug ht a 7- legged Diametr ic form at ion would f i t the bi l l , just l ike i

during 1992-2003.

f each leg of the Diametric consumes about 13 months, and so far all legs (except B) since 2008 did consume 13 months, itwould amount to 7-year+ as consolidation phase.

Not related to Wave Labels so much on an immediate basis, the 30% principle sho ws th at Sensex is at a risk of 25-30% cuvery 2-3 years, ever since 2004, i.e. in the last 9 -10 years.


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n this period , the 25-30% cut was seen from the tops in May2004, May2006, Jan2008 andNov10 so far. The last bott

was during Dec11.Sensex has no w c ompleted 22 months since then wi thout a 25-30% cut.

Even in case the Sensex opens +ve options in the short term as discussed, we should keep the 30% principle in the back o fmind, and act as requi red w hen the t ime comes.

s sh own on the chart com par ing Sensex wi th bro ader ind ices, one could see a 30%+ cut on the broader ind ices dur i

2013. Such cut is pending on the Sensex chart.

With the help of different heavyw eights, Sensex has been attempting to take out 2008 highs for the last five years, buai led every tim e. Even during the current year, three such attempts were made, mainly with the help of ITC, but Index failed.

Despite all that, the broader mark et has kept i tsel f suppres sed. Indeed, BSE Small-Cap and Mid-Cap Index bot h shavedver 30% during 2013.Further many investors stocks touched 2008 lows or even lower levels. Some of the favorite stocks f

PSU / Infrastructure virtually turned into penny stocks.

Under the ci rcum stances, the market do es not appear runn ing away. The long-term 7-8 year consol idat ion sho uld

ont inue in the broader market , i f not on Sensex i tse l f.

The recent supportive effort was seen prot ecting th e Grid level near 17800which was shown on the following chart. The upGrid is at about 20250.

Since Jan13,Sensex kept reacting lower fro m t he Grid level at 20250, and later drop ped to th e lower Grid level at 1780As we noted, VPs 2450-po in t Gr id System, thus, cont inues to provide important turning points since the year 2008.


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s was suspected, the Dollar-Rupee equation keeps gu iding th e movement of the stoc k market. The recent high o f Dol lt 69.23, achieved our p rojection s mad e on 24

thJun13.

n the Weekly Report d ated 24thJun13, i t was argued th at the Dol lar-Rupee equation has an inverted relationsh ip with

Sensex. Based on the Wave-structure shown, it was contended that :

The year-long consolidation phase from Jun12 to May13 on the Dollar-Rupee chart looks like a 3rd

Extension 5th

FailureTerminal. On one higher degree, the Terminal could be part of an Irregular C-Failure Flat from Jan12. If true, thenas perNEoWave principles, Dollar can achieve 67 by Aug14.

s per NEoWave, after an Irregul ar C-Failure Flat, the next move should usually achieve 161.8% ratio to its b leg fromnd-point of c. Time-wise, th is pro ject ion is us ual ly achieved wi th in the tota l per iod cons umed b y the Flat ,i.e. within 1

months from Apr13.

Remember, the pro jected level of Rs.67 was the minimum level to be achieved by Aug14. It was argued that in actual

erms it could reach higher than 67. Dollar-Rupee achieved 67 as was projected, and hit 69.23.


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On the Sensex chart, we had assumed that a major top was made during Jan13 as per Jan-Toppin g Cycle. As it has bee

otally polarized and selective market, the BSE Small and Mid-Cap Indexes shed over 30% each during 2013.

ndeed, this time the broader mark et has been leading the bearish sentim enteven while Sensex was holding higher with thelp of few heavyweights, mainly ITC.

While Sensex cons ists of 30 stock s, the BSE Small-cap univers e comp rises 459 and Mid-Cap 233 actively traded stoc

Whi le Sensex universe m ost ly compr ise inst i tu t iona l hold ings, broader universe affects the sm al l investor.

We had already followed a cautious approach near the 6 year highs. Earlier during Jan13, based on the Jan-Topping Cyclexplained elsewhere in this report), we had warned of a major cycle top. Since Jan13, major damages were se en in t

roader market as wel l as m any ind iv idual stocks and sectors.

Multi-Year long Diametric Formation

was argued that all mul t i - fo ld ra ll ies w ould be fo l low ed by m ul t i -year long con sol idat ions. Sensex, remember, rose 11-uring 1988 to 1992, but entered a 11-year consolidation thereafter.

gain, during 2003 to 2008 it multiplied 7 times. Drawing similarity, it could a 7-year consolidation starting 2008. Further,theon sol idation , may shape up l ike a 7-legged Diametric, similar to the consolidation seen from 1992 to 2003.

The Diametric formation from 2008 is also suspected becauseeach of i ts internal legs, except B, have cons umed about 1


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monthsso far. So, the E wave from Jan13 could also continue for about 13 months, and end somewh ere around Feb-Mar14.

This long- term picture was f is t p ubl ished on6thFeb2012, with both D legs highlighted in Purple color rectangles. In the

revious instance, the D leg during 1996-97 had retraced as much as 97% of its preceding C leg. In the current instance, Detraced 84% of C.

ong-term corrective phase on Dows chartf rom the year '2000 onwards also appears to b e a probable 7-leggedDiametric.Instead of Bow-Tie Diametric on Sensex,Dows Diametric is shaping up as Diamond-Shaped Diametric.

an-Mar Topping Cycle

During Dec12, it was pointed out thatmajor tops occurred du r ing Jan-Mar per iod in the last 13 years.

More than half the times, the top also occurred during the month of January. Based on this, it was argued that Sensex cit a major top during Jan13, and it did. Substanti al damage was, however, seen main ly i n the broader market.


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This cycle may be the result of NAV pop-up exercise in the last month of the Calendar Year. Jan13 was the 7thsuch top

orming in the month of Jan.

erformance of the Broader Market

The broader m arket has, general ly, und er-performed the main Index since the year 2008, as can be checked on the chaelow.


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ndeed, the broader Mid-Cap and Small-Cap Indices have also broken 0-b lines (Red color lines) of the upward D leg. The Sm

ap Index even broke its Jun12 levels, and gave a faster retracement to the c part of post-Dec11 rally.

ndeed, while the Sensex itsel f retraced 89% of i t preceding 13-month fall from Nov10 to Dec11, BSE Small-Cap Indexetraced only 38.2%, and h as, in fact, reacted heavi ly from t his retracement level.

The divergence between Sensex and broader mark et appears to be Index m anagement activi ty, as the Sensex is held

he Index heavy-weights, whi le the broader shows distr ibut ion. This whole th ing, how ever, made for a tr icky and

ncom for tab le trad ing envi ronment.

EoWave Discussions

nside the D leg from Dec11 to Jan13, we had had assumed a 3 -legged a-b-c Flat. The c part was a 5-legged Impulse, insidwhich,5

thleg (beginning Nov12) was assumed to be a Terminal.

ased on NEoWave requirements, it was argued that Sensex would drop below Nov12 lows in 50% time of the 48-day loTerminal. Index eventually did drop below Nov12, but took 48day o r 100% time (instead of 50%).

s an abundant precaution, therefore, fo l low ing alternate wave-structure was suggested for the D leg from Dec11.D is nompleting 161.8% time ratio to C.


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n the alternate scenario, c ended at Oct12 high, and it was equal to a leg. The d was the smallest segment, and

i .e. post -Nov12 rally) was a Double Combination which ended in Jan13.

The post-Nov12 rally is retraced by 100% on Sensex, but more than 100% on broader indices. The larger picture ofDiametric from 2008 onwards is, therefore, considered probable.

That would mean 13-month long D-leg has ended at Jan13 highs, and 13-month long E-leg started thereafter.

NEoWave, remember, al lows except ions to ru les at im portant market turn ing points or under unusual conditions,liknd of larger patterns or last wave, such as a Terminal.

lso, Triangles and Termin als are exception s to virt ual ly al l rules. Since Diametric pattern is made up of Triangles,NEoWave Exception Rule is also applicable to these patterns.

Since we were at an important turning point in Jan13, and dealing with Terminal and legs of Diametric, perhaps pattempl icat ion ru les could n ot be sat is f ied to the fu l l extent .

Does it real ly matter wheth er the Sensex achieves the pattern imp l ication accu rately within the time-pric e parameters

wh en the general direction of the secular market has been largely -ve as we suspected since Dec12 ?

s we argued, the larger bear phase is already visible in the bro ader market. Since Dec12 we turned cautious as the ralliewere getting smaller (shaping into a Terminal), and also because of the Jan-topping cycle (discussed separately).

Terminal we assumed from Nov12 to Jan13, is a special kind of Impulse which occurs in the last wave posi t ion, i.e. e


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s c of Flat/Zigzag or 5tof an Impulse. Its internal structure is made up as 3-3-3-3-3, instead of usual 5-3-5-3-5.

n other words, each leg of a Term inal would develop as a 3-legged o r 5-legged corrective structure, like a Flat, ZigzaTriangle. Also, 4

thof Terminal must enter the area covered by the 2

nd(Overlap Rule).

Al ine simi lar to th e 2-4 l ine on Sensex can also be drawn on th e broader indices, and the same has been broken (as

iscu ssed separately).

Sensex, consumed 59 weeks to retrace 84% of i ts preceding 13-mon th fal l , which also w as a 59-week affair, as shown he chart below :

The ral ly, accord ingly, was con sidered slow er, corr ective structu re as per NEoWave, and no t as part of any fresh ral ly

The channel enclosing the a-b-c Flat inside the larger D leg from Dec2011 onwards was shown on the chart below :


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The 80% retracement level was consid ered and m arked as a pattern imp l ication for the 13-mont h long Dou ble

Combinat ion m ove m arked as C. Pattern impl icat ions, however, cannot be str ic t ly enforced fo r the legs of Tr iangle anDiametric, which are exceptions t o the general rules.

s per NEoWave, most channeled moves enclose a Complex Corrective structure involving x wave.Complex Correct ivenvolving 2 correctives, joined by one x wave, is called a Double Combination, and carries a pattern implication of nmo re than about 80%.

Note that the C leg of Sensex, from Nov10 to Dec11, was a Double Combination, with two equal-sized co rrectives (seeweekly ch art given above), and th erefore, carr ied a pattern impl ic ation of 80% retracement by th e D leg.

urther, as depicted on the chart below, since Nov10, it has been generally useful to consider 61.8% to 80% retracementrea as crucial for terminating m oves.


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s per Wave Theory, Flat is a 3-legged corrective pattern marked as a-b-c, where b corrects more than 61.8% of a. It is als

-3-5 pattern where a and b carry corrective label of :3, and c is an impulse label of :5.

round a Flat, we usually draw a line joining 0 and b (0-b line), and take a parallel from the a point. The c leg shouldormally end near such parallel. The channel indic ates simi lar i ty of i ts 3 internal legs, reason w hy Flats are cal led Flats.

nside c of D (beginning Jun12) for Sensex, we were expecting a 5- legged Impu lse,because Flat is a 3-3-5 structure.

s per NEoWave Extension rule, one of the directional leg inside an Impulse should get extended, i.e. achieve 161.8% ratiohe next largest leg.

Since 1stand 3

rdwere normal, we could have projected 5

thwave Extension. However, such a move would project values sligh

bove the Nov10 highs, which would jeopardize the larger assumption of Bow-Tie shaped Diametric from 2008 onwards.

We, therefore, preferred 5thof c not to achieve 161.8% ratio, but terminate below Nov10 highs, from where a downw

E would open.Since E begins the expanding phase of the Bow-Tie Diametric, it would break below Dec11 lows.

The 1stand 3

rdinside c of D continued for about 4-5 weeks each. We expected 5

thto consume a similar time, and end

omewhere in the month of Dec12 or near to it.

s the beginn ing part of 5thshow s vio lence on ups ide, we suspected 5

thcou ld develop internal ly as a 1

stExtension

mpuls e or Terminal.Since a Terminal always occurs at major turning point, it would be able to generate the necessaryownside power for the larger E leg.


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Yearly lows

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

s the past instances wo uld show , once the year ly low gets broken, a min imum of 20% cut from the low has been a u

henomeno n, though g radual ly. A 20% magnitud e reduced from 15652 would calculate to about 12500 for Sensex.

This level has not been touched so far , but sh ould be rememb ered as a cruc ia l leve l which m atches wi th the hug e gap

ction (refer to the Weekly chart disc uss ing 32-week cycle) seen during the 2009.

2-Week time cycle

The development since Mar09 hasfol low ed a 32-week time cycle, as shown on the chart below.


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This was used for ra is ing a possib i l i ty that an important low w ould be formed around 20thAug11. Sensex responded

i t t ing the bottom on 26

th

Aug.

This cyc le had also raised the possibility of an upward/sideways phase that could survive for 32 weeks from Aug11, and either on 4

thFeb12 or 31

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

during Feb12 as per this cycle.

Going by the structural possibilities from this cycle, it 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 wh ich sho ws smal ler ra ll ies and bigger drops . Thus in one directionhows e < c < a, and in the opposite direction, it shows d > b.

bove 18000, Right Shoulder became bigger that the L eft Shoulder , which appeared re ject ing the H ead & s houlders orExtracting Triangle argument. However, the 32-week time cycle may remain val id as a cycle even from h ere.

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

no ther idea would be to m ark the entire developm ent as a Diametric, instead of Extracting Triangle, and the same is

ow marked on the chart . These assumpt ions ind icate an incomp lete B, but conf i rms only on faster drop below the

Neckl ine, which is s ti l l awaited.

Recent recovery happens to be exactly at 32-week cycle turning p oint.


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0% Principle

Al l major tops are character ized by 30% drop from the top value. This is no rmal not o nly ins ide a bear phase, but isommo nly seen even inside a bul l phase too. The 30% taken out from th e current 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 m easure more than 30% .

Overal l , it was argued much ear l ier , that we would see a topping format ion sp read ov er 2-3 month per iod beginn ing

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

450-point Grid chart for the Sensex

Sensex 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.

ndex during 2013 reacted thrice from the Grid level at 20250, and is now protecting the next lower Grid level at 17800.


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The suspected corrective phase beginning Jan08 would be the 2ndwave within th e larger 5

thwave.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

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, Term

evelopm 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, '19was 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, weveconsidered 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 during 1992, 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 below7200.Break 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 .


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pp endix : Super-Cycle-degree Wave-scenarios for Sensex

or Super-Cycle-Degree wave-scenario, consider following ASA Long-Term Index. This Index has been created by combining ery old Index compiled by a British advisor (from '1938 to '1945), with RBI Index ('1945 to '1969), F.E Index ('1969 to '1980) a

Sensex (thereafter till date).


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The wave-count presented shows that the market is into the lower-degree 5th of the SC-degree 3rd

or 5thwave.

The detailed wave-count from 1984 onwards can be seen on the Monthly chart given below. The 2-4 line shown on the ASA lo

erm Chart above, and Monthly chart below, would determine if the post 1984 Impulse is a Super-cycle-degree 3rd

or 5th.


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Super-Cycle-Degree 3rd

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

rdwas an extended leg, which achieved exactly 261.8% ratio

he 1st

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

Wave, and the same could develop as a Terminal, because its lower-egree 1

stwave from May03 onwards developed as a Diametric (which is a corrective structure, rather than an impulse). Wi

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

While the 4this shown as a 3-legged a-b-c Flat on the monthly chart above. Alternatively, the 4

this shown as a 7-legged a-b-c-

g Bow-Tie Diametric on the Monthly chart below. The chart below also shows 11-year parallel channel from Apr'1992 toMay'2003. As shown, if one projects the width of this channel on upper side, such a projection gave 20000 as the minimum

arget. This forecast was achieved.


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.

s mentioned above, the lower-degree 1stfrom May2003 to Jan2008 appears to be a Bow-Tie Diametric, marked as a-b-c-d-e

. It is called "Diametric" because it combines two Triangular patterns, one initially Contracting up to the "d" leg, followedby aExpanding one.The contraction point is the "d" leg, and the legs on either sides of it tend to be equal. Accordingly, "c" and "e

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

The Diametric development from 2003 to 2008 is considered to be the 1st wave of the Impuse. Due to the corrective structurehe 1

stleg, the higher-degree 5

thcould be developing as a Terminal. Since 2008, we are into its 2nd wave, which could continu

evelop over a period of 7-8 years beginning 2008.


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s per NEoWave, break of 2-4 line confirms a Terminal development, and If the 5thproves to be a Terminal, the Super-Cycle-

egree label of 3

rd

will have to change to 5

th

, because only a 5

th

of a 3

rd

cannot be a Terminal. Only a 5

th

of the 5

th

can be aTerminal. The Super-Cycle-Degree marking for 1

stand 2

ndas shown on ASA long-term chart, would then change to 3

rdand

threspectively.

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.


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Weekly Technical Analysis 12TH Nov 2013

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