Weekly Technical Analysis 13 Th August 2012

7/28/2019 Weekly Technical Analysis 13 Th August 2012

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August 13,2012

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

Sensex gains 2%, testing 5-month highs.

IIP contracts by a surprising 1.8% in 'June.

Foreign analysts cut GDP growth forecast to below 6%.

New FM planning to revive further divestment of listed PSUs.

Cutting fuel subsidy can cause 2.6% spike in inflation, says RBI.

Hamid Ansari elected Vice-President, gets 490 votes against Jaswant Singh's 238.

FM objects to proposal to gift mobile phone to BPL families.

op Stories of the Week

7292+ confirms our Neutral Triangle, watch 17591 and 17700 as crucial next week

ast week we discussed, “bounce from near the 200-day EMA levels, raising +ve hopes for the coming week … Global cuver the weekend are +ve … watch for the faster retracement of the latest falling segment from Wed to Fri … In case of ster retracement, the development from 10

thJul high would look like a Neutral Triangle … weakness of last 2 days as i

g … Neutral Triangle confirms on faster retracement above d at 17292 (Nifty 5246) within the next two days … In caseeutral triangle, the thrust is usually between 61.8% and 75% … Assuming Friday’s low was end-point of e , this wouldroject about 17500-600 (Nifty 5300-50) as upside … ”

ensex opened gap-up above 17292 (5246), and was up 529 pts (Nifty 162 pts) by Wednesday. Cooling down 256 pts (Nifty s) by Friday, however, Index finally ended 360 pts or 2.1% higher for the week. Auto, IT and Metal Indexes rose over 3%,ough the broader, Small-Cap Index, finished flat. The action formed a Bull candle on Sensex‟ Weekly chart, the s ize of whas similar to previous week, which, however, carried a small gap-up area at 17292-31 below its bottom.



he action was almost similar to the preceding week. Decent up-move was seen till Wednesday, measuring about 700 pts

Nifty 214 pts) in both the weeks. This was followed by a cool-off of about 260 pts (Nifty 81 pts) from Wednesday to Friday.

With similar up-moves and reactions in both the weeks, the move over the last 11-12 days appears perfectly channeleds shown on the charts.

aving observed the similarity, the first question now is whether the market could move up from here, like previous Fridonday. Remember, previous Friday‟s action was followed by a huge 104 -pt gap-up open on Monday.

he second question would be whether such up-move would be able to take out 17700 (Nifty 5390). Index, remember,iled to take out these levels since March’12, i.e. for the last 5 months.

deed, Index reacted from these highs for about four times in the last 5 months. In the coming week, therefore, we need to seee Index is able to confidently take out its 5-month resistances.

n the Daily Close-Only charts, last week‟s highest Daily close was lower even than the one achieved during „July.

ast week, the thrust out of the Neutral Triangle was considered as a probable “x” inside a still -developing 2nd

wave. Itas argued that 2

ndshould consume more time compared to the 1

st. Remember, against 26 days consumed by the 1

st, the Neu

riangle consumed only 18 days.

was also pointed out that, in case the thrust turns out to be much larger than 75% of the largest leg of the Neutralriangle, the move could part of the 3

rd wave inside the bigger “c” leg, and “c” may form as a Terminal.



s was mentioned, a 2n

wave which consumes lesser time than the 1st, and also forms as a Triangle, would indicate a Termina

evelopment.

n the other hand, in case the Sensex misses to strengthen much above Friday, and then breaks our rising channel, thee “x” label to last week’s thrust would be maintained, and we’d expect 2

ndcorrective inside the 2

ndwave to develop

ownwards to sideways, consuming price-time similar to the 1st

corrective (Neutral Triangle).

owever, as long as 16550-650, the area which proved support recently , is protected, we’d also expect a 3rd

wave topen, once the 2

ndis completed.

would only below 16550-650 that we consider more bearish option that the 5-week rally of Jun-Jul was a complete “c” of D, ahas begun.

n one higher degree, inside the a-b-c Flat developing inside D, as was argued much earlier, “c” could achieve anything from8.2% to 161.8% ratio to “a” (Dec-Feb rally), price-wise, and consume minimum 50% time compared to “a” and “b” put togetherme-price potential for “c” can be ca lculated accordingly.

case we modify label for the rally to a 3rd

wave, we’ll initially assume “c” to be developing as a 1st

Extension Impulseherein 3

rdwould remain smaller than the 1

stprice-wise.

summary, firstly we‟d watch for strength above last Friday‟s high of 17591 (Nifty 5330), and secondly, for strength above the onth resistance of 17700 (Nifty 5390), as crucial events for the coming week.

echnical readings carried forward from previous weeks are shown in italics. Readers can easily identify the new argumentshich are written in regular font]

eutral Tr iangle does not exis t u nder or thodo x Wave Theory , which considers only 2 categories of Triangle, i.e. “Expandinnd “Contracting”. Under NEoWave, however, Neutral Triangle category is appl ied when c leg is the largest segm ent of

riangle.

eutral Triangle is a 5-legged corrective pattern, marked as a-b-c-d-e. Against “Contracting lines” for a “contracting riangle”, and “Expanding” lines for an “Expanding Triangle”, “Parallel” lines are drawn in case of a Neutral Triangle , hown on the charts.

eutral Triangle is a five-legged formation in which the middle leg, i.e. c leg, is the biggest leg and a and e tend tow ard

qual i ty. The b leg is usually small, and d is much bigger than b. Its channeling would be similar to a 3rd

Extension Impulse. Aaral lel is drawn to the b-d from the lowest poin t of the f i rs t drop.

ll Triangles are made up of 5 legs. If the initial legs are bigger, the shape would look as “Contracting”. I f the last of the legs aregger, the shape would look as “Expanding”.

s against this, the shape of a Neutral Triangle is “bulging” in the middle, which is the result of the middle leg, i.e. c leg,eing the biggest leg amo ngs t a-b-c-d-e.

he thrust o ut of any t ype of Triangle is general ly related to its largest leg. In case of a “Contracting Triangle”, the thrust ould be about 100% of its largest leg. In case of “Expanding Triangle”, it would be about 50 -61.8% of the largest leg.

case of a Neutra l triangle, however, the thrust is usually between 61.8% and 75%, more than the “expanding” type, bsser than the “Contracting” type. Assuming Friday‟s low was end -point of e, this w ould project abo ut 17500-600 (Nif

300-50) as up sid e .

tructurally, the problems of imp uls ive labels ins ide the 1 st wave, as visible on the Intra-day chart, were pointed ou t las

eek. It was said that there was no alternation between one lower-degree 2 nd

and 4th

inside the 1st of “c”. It was also noted that

wer-degree 5 th

was also not retraced completely.

n one higher degree, we assumed larger D leg began from Dec‟11 (wave -count-wise from the 9th Jan‟12), and the same may



eveloping as a Flat. Its “a” leg was a channeled Double Zigzag till Feb‟12, and “b” was a channeled Complex Corrective enclosDiametric formations.

lso, “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 1

st

rally from 4

th

Jun had retraced the last falling segment inside “b” in faster time, which justified our assumption of “c” of Dpwards.

hough “c” of a Flat could achieve Fibonacci proportion with “a” leg, anything from 38.2% to 261.8%, price -wise and

me-wise, norm al expectation wo uld be a 100% ratio.

eferring to one more larger-degree structure, we are assum ing the 14- month fall from Jan‟08 to Mar‟09 as A of a large 7 -gged Diametric. The 20- month rally from Mar‟09 to Nov‟10 is assumed as its B leg.

he 14- month fall from Nov‟10 to Dec‟11 was labeled the C leg of the larger Diametric, which was a well-channeled Compleorrective involving two equal-sized correctives.

rom Dec‟11, we are into the D leg, which is still on, developing as a “Flat”. The rally from Dec‟11 to Feb‟12 was labeles “a” of D, and the same was a wel l-channeled Double Zigzag, whic h carr ied a pattern impl ication of abo ut 80%.

While the “orthodox” Wave Theory gives importance to 61.8% retracement level and calls it a “Golden Ratio”, NEoWave Theor

on siders 80% also as anoth er important retracem ent level, especial ly after channeled moves.

s the chart below depicts, since Nov‟10 it has been generally useful to con sider 61.8% to 80% retracement area as cruc

r terminating c orrective phases. It wor ked this time as wel l .



hese “a” and “b” legs are part of the D leg which commenced from 9th Jan, and is developing as a “Flat”, wherein by the defini

f a Flat, “a” is non-impulsive, and “b” corrects more than 61.8% of “a”. It did 80%.

nce “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 the higher degree C leg from Nov‟10 downwards ended on 9th Jan‟12 as a Double

ombinat ion. This leg was also well-channeled, and enclosed a Neutral Triangle (from Nov‟10 to Jun‟11) and Contracting Trianrom Jul‟11 to Jan‟12).

s we also observed, the 1 st and 2

nd corr ective were exactly equal price-wise, both m easured almost exactly 3800 Sense

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



y NEoWave log ics, most channeled moves enclose Complex Corrective structures involving “x” waves .

fter breaking the 14-month long channel (from Nov‟10), we suspected that current ral ly has po tential to be marked as D leg

much larger Triangle or Diametric from „2008. This option was preferable because C leg from Nov‟10 was not anmpulse. A Non-impulsive C leg could only be part of a larger Triangle or Diametric.

side this, the larger A leg was from Jan‟2008 to Mar‟2009. The B leg was from Mar‟2009 to Nov‟2010. The C leg cameown from Nov‟2010 to Dec‟2011, as a channeled fall (Complex Corrective) with two equal standard correctives.

While A and B w ere equal-sized price-wise, C achieved time-equal i ty (14 mo nths ) with A. The long-term Diametric pictureas shown on the chart below.



y NEoWave logics, D leg of a Triangle can retrace m inimum 50%, or ideal ly 61.8%, of the C leg. The 50% level was at

8123. So far, D leg has retraced C by abo ut 57%.

of a Triangle or Diametric can even retrace as much as 80% or more of C leg. However, if our assumption of larger formationom „2008 being Triangle or Diametric is true, D could remain smaller than C, i.e. not cross Nov‟10 high of 21109. See theg marked during „1996 -97 on the chart.

ne 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 meander ing phase of the

arket may be because market is forming D leg, which is the middle, “Contracting” portion of the larger Diametric rmat ion.

early low s

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

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 us

henomeno n, though gr adual ly. A 20% magnitude reduced from 15652 would calculate to about 12500 for Sensex.

his level matches with t he huge gap-up action (refer to Weekly chart discu ssing 32-week cycle) seen during the „2009



he chart given below shows equidistant parallel lines enclosing the development since Nov‟10. Further, it shows how

ensex respected most of i ts im portant lows as resis tances la ter .

ensex recovered n early 12% exactly fr om this level, and is no w testing 17300/17800 levels marked on the chart.



2-Week time cy cle

he development since Mar‟09 has followed a 32 -week t im e cycle , as shown on the chart below.

his had ra ised a possib i l i ty that an important low w as may be form ed around 20 th Aug. Sensex responded by hi t t ing t

ot tom on 26 th Aug.

his also raised the possibility of an upward/sideways phase that could survive for 32 weeks from Aug‟11, and end eithn 4

th Feb‟12 or 31

st Mar‟12, developing as a ranged movement l ike the Left Shoulder . The upward phase ended dur ing

eb‟12 as per this cycle.

oing by the structural possibilities from this cycle, it was suspected that Sensex could be forming an “e” leg of a possiblextract ing Tr iangle , which w ould remain sm aller 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 bigg er drops. Thus in one directionhows e < c < a, and in the opposite direction, it shows d > b.

n one higher degree, Extracting Triangle (from Mar‟09) would make up the larger B leg from Mar‟09 lows of 8047, whichorrectin g the 14- month long A leg from Jan‟08 to Mar‟09.

ime-wise, this B leg endin g Feb- Mar‟12 would consume as much as 261.8 % time compared to A, before C leg of thequivalent degree goes down.



his is an extremely b earish picture, alternative to the larger Diametric sc enario discu ssed earl ier, wherein C can fal l t

st even Oct‟2008 lows.

bove 18000, Right Shoulder become bigger that the Left Shoulder , which m ay appear re ject ing the Head & sho ulders

Extracting Triangle” argument. However, the 32 -week time cycle also match es with the 2-year cycle (already disc uss e

nd may therefore be watched.

he Sensex w as s een testing the “Neckline” shown on the chart, which did prove crucial, as Sensex bounced 12% frome Neckl ine.

l l major top s are characterized by 30% drop from th e top value. This is no rmal not o nly insid e a bear phase, but is

ommo nly seen even inside a bul l phase too. The 30% taken out from th e current top value on Sensex (21109) wo uld b

ss th an 14800.

he 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 and

idCap Index, the loss from „ 2010 high do es measure more than 30% .

veral l , it was argued muc h ear l ier , that we would see a topping form at ion spread over 2-3 month per iod beginn ing

Oct‟10. This played out well as suspected. Indeed, as was observed, 60% of stocks topped out during „Oct‟10 itself, anany have al ready sh aved off mu ch m ore than 30%, though Sensex i tse l f shaved off only 28%.



omparison with Jan'08 top formation

We compared the „2010 topping formation to the movement from Oct‟07 to Jan‟08 , a 2.5 month period jus t bef o re the h igf 21206 was hit o n Sensex. This was also an extremely vo lati le period of nearly two months, just before the market actuallpped out.

he following chart of „2008 period shows two equidistant parallel channels. The Sensex broke above th e original chan

nd achieved an equidist ant height at the upp er paral lel , before reacting low er into a bear phase.

ne may observe the volatile development once it reached closer to the upper parallel. Inside this volatility, the market faced umber of sell-offs beginning Oct‟07, before it finally topped on 8

th Jan‟08.



similarity can be drawn for the „2010 top formation with the developments of „2008, as shown below.

ensex was seen testing the lower Bl ue paral lel, f rom where it bounced recentl y. The lower Blue parallel appears under test once again



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 Sensex elow. One can find a bottom or a top getting formed at each of the Grid levels.

ee how heavy damages occu rred almos t exactly from the Grid level at 17800. The next Grid level around 15300 is

roving sup port la te ly .



ur 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 mu lt i -year cons ol idation ph ase . In other words, “long - term” has always meant 4 years in Indian conte

emember, Sensex rallied 11- fold from 390 (Mar‟88) to 4546 (Apr‟92) in four years, after which it con sol idated for 11 yearsom „1992 to „2003.

„2008, it completed another 4- year rally from „2003, during which Sensex rose 7 -fold from 3000 levels to 21000. It m a

ow consolidate for 7 year, beginning „2008, preferably forming as a Triangle or Diametric.

We explained that th e 14- month fall from Jan‟08 was a Triple Combination “A” leg of a large multi -year cons ol idation. orrect ive phase beginn i ng Mar‟09 retraced about 99% of the previous fall from 21206 (Jan‟09) to 8867 (Mar‟09), (which wbeled as a Triple Combination). The longer time required while rallying is symptomatic of its corrective label of “B”.

he ral ly from 8047 (actual ly begin ning at 8867) was, therefore, considered as the “B” leg. The next leg downwards woe labeled as “C”. Such a-b- c development since Jan‟08 would be considered part of the 2

nd wave of wh at appears as

rob able Terminal beginning „2003.

ven though we saw the market reaching levels above Jan‟08 highs, the multi -year cons ol idation is expected to shapeke a large decade-long Diametric , looking similar to the consolidation we saw from „1992 to „2003. Our trad ing/investment

ra teg ies should be designed accord ing ly .

he suspected corrective phase beginning Jan‟08 would be the 2 nd

wave with in the larger 5 th wave. This 5

thwave is

uspected to be forming as a Terminal due to absence of impuls ive behavior in i ts in terna l 1 st wave . The “Terminal” confi

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



ne may see the Yearly chart in Appendix, which shows the 2-4 line and its values for the next three years. Remember, Termi

evelopment usu al ly violates the 2-4 l ine.

he Sensex is assumed to be under the influence of a large 8-year cycle ever since its birth. As shown on the chart below, '198

as 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 unde

eparate paragraph, we‟ve considered „1984 as the beginning point for the most dynamic 3rd wave.

he next two important turn ing points occ urred exact ly 8 years thereaft er, in '1992 and '2000 . Both these turning points warked by stock market scams, because of which, the leaders of the rally had extremely difficult time later. For example, ACC, ading stock of '1992 bull market, remained below its highs till end of '2004. Similarly, the IT stocks, which were leaders of '200lly, lost as much as 90% of their top valuations by the year '2003.

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

the previous 8-year cycle top during „1992, Sensex lost 57% from 4546 to 1980 . In the next cycle top, the cut was almos

8% from 6150 in „2000 to 2594 in „2001 .

We had, accordingly, targeted sub -10k levels for Sensex price-wise during „2008 -09, and a minimu m of 13 month s in to be

hase, time-wise. The price-time targets were achieved as Sensex dropped 63% from 21206 to 7697. The yearly channel, sho

elow, which was used earlier to project 20000 level for the Sensex during „2007, was broken when the Index moved below 172reak 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 .



ppendix : Lo ng-term s cenar ios for Sensex

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

he first one assumes that a large Triple Combination corrective, beginning Sep'1994 got over in Oct'2005 at 7656. The last orrective within this Complex Corrective phase formed as a "Non-Limiting" Running Triangle. This has been my preferred

cenario for many years, which I had assumed to be under development since I began long- term forecasting during „1997 -„199his one was the basis of “Forecast for the 21st Century” article published in Business Standard (which can be read on

vekpatil.com).

his scenario also combines well with the traditional channeling technique. Sensex followed a parallel channel for 11 long yearsom 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 5 th ) began since Nov‟84. Its internal 3

rd was an “extended” leg, whic

chieved exactly 261.8% ratio to the 1st on log scale. The Sensex is now forming its 5 th Wave, and the same is likely to develop”Terminal”, because its lower -degree 1

st wave since May‟03 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 valuise, and 261.8% time-wise, as shown below.

ince the 5 th

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 :



evelopment from May‟03 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.



.

he Diametric development from 2003 to 2008 has been considered as the 1st of the 5 th

. Due to the corrective structure in the

g, larger 5

th

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

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

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

rd or 5

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

chieve even 50000+.

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

vels than 50K, but end surely above 21000.

the 5 th prov es to be a Terminal, one larger-degree label of 3

rd wi l l have to change to 5

th , because only a 5

th of the 5

th c

e a Terminal. The Super-Cycle-Degree markin g for 1 st and 3

rd shown , would then change to 3

rd and 4

th respectively, as

hown in Whi te .



sclaimer : These notes/comments have been prepared solely to educate those who are interested in the useful application of echnical 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 13 Th August 2012

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