Weekly Technical Analysis 5TH Nov 2013.docx

8/14/2019 Weekly Technical Analysis 5TH Nov 2013.docx

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Weekly Technical Analysis05 Nov 2013

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

Sensex hits a new all-time high on Moorat Day. Nifty falls 14 pts short for a new high. RBI raises Repo Rate by 25 BPS. RBI cuts MSF rate by 25 BPS to ease liquidity. PSU Bank stocks rally after RBI Policy.

Top Stories of the Week

Sensex hits new highs, but staying above '2008 high appears critical structurally

[Technical readings carried forward from previous weeks are shown in italics. Readers can easily identifythe new arguments which are written in regularfont]

Last week we discussed, With Higher High but a Lower Close, the action formed as Weekly DownwardBar Reversal(DBR) Oct rally has been slower compared to the preceding rally during Aug-Sep In order to suck in the last buyer, NEoWave does not rule out tricky trade the developmentfrom Aug-13 onwards is alternatively developing as 5-legged Extracting Triangle confirms if c-legremains smaller than a-leg, and thereafter d-leg turns bigger than the b-leg last weeks Low could beconsidered crucial. Holding it could maintain +ve options. The -ve options can open otherwise.Watch it on closing basis

The action was tricky as suspected. Sensex initially broke last weeks low on Monday. However, itbounced from Tuesday onwards, and recovered to break the previous highs of 2008 -10. Thus,avoiding closing below previous weeks low, it finally settled at a new all-time high, up 555 pts or2.5% higher for the Settlement Week. Though FMCG and IT Index lagged behind, rest of the sectors

ended flat to +ve. The PSU Banks outperformedwith an average of 7% gain.


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The break above 2008 highest levels opens up certain structural possibilities. As was argued earlier, amove breaking above 2008 could be considered as F leg of the larger 7 -legged Diametric formationsince 2008onwards. This Diametric possibility was shown on the chart below :


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It was argued that 7-fold rally from 2003 to 2008 would require a multi -year consolidationto digestthe excesses created by such a rally. As was argued, if the multi-year consolidation achieves 161.8%time ratio to the rally, it could end only after 2015.

However, by NEoWave, the consolidation phase has to consume a time greater than the rally.Against the 56-month rally from May2003 to Jan2008, Sensex has already completed 67 monthsconsolidating from Jan2008 to Aug2013.

Having seen this, we raised the question if the consolidation from 2008 onwards is now completedas a 5-legged Triangle (instead 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 internally marked as a corrective pattern (Running Diametric).

The Terminal was suspected because its 1st

wave from 2003-2008 had a corrective label. (In anormal Impulse, 1

stwave should have Impulsive structure).

Also, in a Terminal, 2nd

wave can be Triangle. (Inside a normal Impulse, 2nd

wave cannot develop as aTriangle, only 4

thcan).

Under the circumstances, if the Sensex now holds and indeed strengthens above its 2008 -10 highs,we will be forced to consider the current up-move as the 3

rdof the Terminal Impulse, as per the

Greenlabels shown below :


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If, however, the Sensex fails to shows any such strength, we can maintain the current assumptionthat the rally is only an x wave inside E, and is perhaps developing as a 5-legged Extracting Triangle,as per the labels shown on the initial Daily chart.

Remember, structurally we considered the slower rally of Oct as c -leg of Extracting Triangleinsidex, which is a 5-legged pattern wherein d-leg fall would be larger than b-leg, and e-leg rally could end at afailure point.

If -ve options fail to open next week, the development from Aug13 could be considered the F leg of largerDiametric from 2008, which may itself be developing as a 7-legged Bow-Tie Diametric, as per the Whitelabels marked on the initial Daily chart.

Since Fridays candle showed a full-day working, wed require close below Friday to be confident about the-ve options. Since broader indices outperformed, wed also check if the bias turns -ve for these indices aswell.

Until we feel confident that a bias has decisively turned -ve, we may assume bias to remain +ve. We havebeen taking due care, remained in a trading mode for a while, because a sucker rally could prove tricky, aswe argued even last week.

As was argued, a slower rally is an indication that Bulls may be tiring out.

An Extracting Triangle is a 5- legged pattern with ral l ies gett ing sm al ler and drop s bigger.Extracting Triangle form ation con firms if c -leg remains smal ler than a-leg, and th ereafter d-leg turns


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bigg er than the b-leg. The e-leg coming next would be its last leg, and faster do wnside retracement ofthe e-leg would conf i rm the end of the Extract ing Tr iangle.

By convent ional Technica l Analys is , an Extract ing Tr iangle would b e seen as a Head & shoulders

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

An extracting triangle could also be seen as a distribution pattern. It shows bulls losing powergradually as they are able to form only smaller rallies, and are confronted with bigger drops. [e b].

The larger quest ion to ask wo uld be i f the last buyer has bought in to . Top cannot form unt i l he has.

In order to suck in the last buyer, NEoWave does not rule out tricky trade, including a suckersrally, at the top under its Exception Rule. We may watch out for that.

A Lower Top Lower Bottom forming on the Daily Close-Only chart is still awaited as further -ve sign, whichwould indicate a falling structure 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 higher than its 1992 highs during 1994 and 1997, but reacted by over 30% both thetimes.

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


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This happened because the 11-year long 1992-2003 phase was a multi-year corrective phase correctingthe preceding 11-fold rally from 1988 to 1992.

We had argued that mu lt i - fold ral l ies require mult i -year conso l idation phases to absor b the

excesses during th e mult i - fold ral l ies.

Since the Sensex multiplied 7 times during 2003 to 2008, we argued it could require a mult i -yearconsolidation, probably lasting 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 consume mo re t ime than themov e i t is correct ing. The 1992-2003 corrective phase continued for a time-ratio of 261.8% to thepreceding 4-year rally from 1988 to 1992.

As per Wave Theory, a correctiv e phase sh apes up as 3-legged Flat/Zigzag, 5-legged Triangle or 7-legged Diametric(which basically combines 2 Triangles).

The current phase from 2008 onwards is correcting the 56-month move from May2003 to Jan2008.I t al ready has cont inued for 69 monthsfrom Jan2008 till now, i.e. more time than the move it is

correcting.

The question no w is wh ether the corrective phase w ould end as a 5-legged Triangle, OR wou ld it

con tinue for 2 more legs and form as 7-legged Diametric.

At a minimum level, a move above 2008 highs would be required to justify and modify the correctivephase from 2008 onwards from 7-legged Diametric to a 5-legged Triangle, where E ended atAug13 lows.

As was shown on the chart, al l the up-down legs from Jan13 to Aug13, except b, consumedexactly 20-25 days

As per VPs observational rules, all the legs, except b, of a 7- legged Diametric tend tow ards time-

simi lar i ty. Indeed, by reverse logic, when legs begin to be similar in time, the structure is more likely toform as a Diametric.

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

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

The C leg (from Nov10 to Dec11) as well as D leg (from Dec11 to Jan13) maintained the time similarity,each consuming 13 months exactly. Under the circumstances, it was thought fit that the larger formationfrom 2008 onwards to be a 7-legged Diametric formation.


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This long-term picture was published on 6thFeb12. The Diametr ic assump t ion also comp ared wel l wi th

the 11-year formation previously seen during 1992 to 2003 .

The question, now, remains if we continue with the Diametric assumption or complete the post- 2008development as a 5-legged Triangle. As we have been explaining, we can open possib i l i ty of endingthe phase as Triangle only if we see strength above 2008 high of 21207 (Nifty 6357) .

The market is being moved m ainly on a/c of FII buy ing heavyw eights selectively, even as manystocks have been trading near 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 2008high so far.

How reliable is the F I I Net I nvestment data coming f rom SEBI is another question. We generally see the inf lated

igure in FII buying matching with DIIs selling figure. However, above observation is made assuming the data

fr om SEBI is correct.

The dispar i ty between Sensex and b roader market was shown on the com parative 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 i tse l f is found test ing at the upper end of the channel shown on the fo l lowing chart:


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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 reacted lower. In case +ve option s, Sensex may make another attemp t towards th eupper channel , but the move co uld st i l l be part of 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 cont inue the argum ent for m ul t i -year consol idat ion ph ase, as explained previously , such a

mov e could mean larger E ended in 8 months and F is opening.

It was argued th at after a 7-fold rally from 2003 to 2008, Index may form a 7-year longconsolidation phase from 2008 onwards, which could end only after 2015, which would achieve161.8% time ratio with 2003-2008 rally.

To consume the requi red large amoun t of t ime, we thought a 7- legged Diametr ic form at ion would

fit the bill, just like it did during 1992-2003.

If each leg of the Diametric consumes about 13 months, and so far all legs (except B) since 2008 didconsume 13 months, it would amount to 7-year+ as consolidation phase.

Not related to Wave Labels so much on an immediate basis, the 30% princ iple show s that Sensex is ata risk of 25-30% cut every 2-3 years, ever since 2004, i.e. in the last 9 -10 years.


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In this p eriod, the 25-30% cut was seen from the tops in May2004, May2006, Jan2008 and Nov10so far. The last bottom was during Dec11. Sensex has now comp leted 22 months since then wi thouta 25-30% cu t.

Even in case the Sensex opens +ve options in the short term as discussed, we should keep the 30%pr inc ip le in the back of th e mind, and act as requi red when the t ime com es.

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

broader indices during 2013. Such cut is pending on the Sensex chart.

With the help of different heavyweights, Sensex has been attempting to take out 2008 highs for thelast five years, but fai led every time. Even during the current year, three such attempts were made,mainly with the help of ITC, but Index failed.

Despite all that, the broader m arket has kept i tsel f sup pressed. Indeed, BSE Small-Cap and Mid-Cap

Index both shaved off over 30% during 2013. Further many investors stocks touched 2008 lows oreven lower levels. Some of the favorite stocks from PSU / Infrastructure virtually turned into penny stocks.

Under the circum stances, the market does not app ear runn ing away. The long -term 7-8 year

consol idat ion should cont 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 thefollowing chart. The ups ide Grid is at abou t 20250.


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Since Jan13, Sensex kept reacting low er from t he Grid level at 20250, and later dropped to thelower Grid level at 17800. As w e noted, VPs 2450-po in t Gr id System, thus, cont inues to p rovideimportant turning points since the year 2008.

As was suspected, the Dollar-Rupee equation keeps guid ing the mov ement of the stock m arket. Therecent high o f Dol lar, at 69.23, achieved our p rojectio ns m ade on 24

thJun13.

In the Weekly Report d ated 24thJun13, it was argued that the Dollar-Rupee equation has an

inverted relationship 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 5

thFailure Terminal. On one higher degree, the Terminal could be part of an Irregular C-Failure

Flat from Jan12. If true, then as per NEoWave princ iples, Dol lar can achieve 67 by Aug14.

As per NEoWave, after an Irregular C-Fai lure Flat, the next move sh ould usu al ly achieve 161.8%

ratio to its b leg from the end-point of c. Time-wise, th is pro ject ion is us ual ly achieved wi th in thetota l per iod c onsum ed by th e Flat ,i.e. within 16 months from Apr13.

Remember, the projected level of Rs.67 was the minimum level to be achieved by Aug14. It wasargued that in actual terms it could reach higher than 67. Dollar-Rupee achieved 67 as was projected, andhit 69.23.


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On the Sensex chart, we had assumed that a major top was made during Jan13 as per Jan -ToppingCycle. As it has been a totally polarized and selective market, the BSE Small and Mid -Cap Indexes shedover 30% each during 2013.

Indeed, this time the broader mark et has been leading the bearish sentim enteven while Sensex washolding higher with the help 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

act ively traded stock s. Whi le Sensex universe m ost ly compr ise inst i tu t iona l hold ings, broader

univers e affects the smal l investo r.

We had already followed a cautious approach near the 6 year highs. Earlier during Jan13, based on theJan-Topping Cy cle (explained elsewhere in this report), we had w arned of a major cycle top. Since

Jan13, major damages were seen in the broader market as well as many individual stocks andsectors.

Multi-Year long Diametric Formation

It 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 conso l idations. Sensex,remember, rose 11-fold during 1988 to 1992, but entered a 11-year consolidation thereafter.

Again, during 2003 to 2008 it multiplied 7 times. Drawing similarity, it could a 7-year consolidation starting2008. Further, the cons ol idation , may sh ape up l ike a 7-legged Diametric, similar to the consolidation


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seen from 1992 to 2003.

The Diametric formation from 2008 is also suspected because each of i ts intern al legs, except B, haveconsum ed about 13 month sso far. So, the E wave from Jan13 could also continue for about 13mon ths, and end somewhere around Feb-Mar14.

This long- term picture was f is t pu bl ished on6thFeb2012, with both D legs highlighted in Purple color

rectangles. In the previous instance, the D leg during 1996-97 had retraced as much as 97% of itspreceding C leg. In the current instance, D retraced 84% of C.

Long-term corrective phase on Dows chart from the year '2000 onwards also appears to b e aprob able 7-legged Diametric . Instead of Bow-Tie Diametric on Sensex,Dows Diametric is shapingup as Diamond-Shaped Diametric.

Jan-Mar Topping Cycle

During Dec12, it was pointed out that major top s occ urred durin g Jan-Mar period in the last 13 years.

More than hal f the t imes, the top also occurred during the month of January. Based on this, it wasargued that Sensex could hit a major top during Jan13, and it did. Substanti al damage was, however, seenmainl y in 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 wasthe 7

thsuch top forming in the month of Jan.

Performance of the Broader Market

The broader m arket has, general ly, und er-performed the main Index since the year 2008, as can bechecked on the chart below.


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Indeed, the broader Mid-Cap and Small-Cap Indices have also broken 0-b lines (Red color lines) of theupward D leg. The Small-cap Index even broke its Jun12 levels, and gave a faster retracement to the cpart of post-Dec11 rally.

Indeed, while the Sensex itsel f retraced 89% of i t preceding 13-month fall from Nov10 to Dec11,BSE Small-Cap Index retraced only 38.2%, and h as, in fact, reacted heavi ly fro m th is retracement

level.

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

the Sensex is held by the Index heavy-weights, whi le the broader shows distr ibut ion. This whole

th ing, however, made for a tr icky and uncomfor tab le trad ing envi ronm ent.

NEoWave Discussions

Inside 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, inside which, 5

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

Based on NEoWave requirements, i t was argued that Sensex wou ld drop below Nov12 lows in 50%t ime of the 48-day long Terminal. Index eventually did drop below Nov12, but took 48 day or 100%t ime (instead o f 50%).

As an abundant precaution, therefore, fo l low ing alternate wave-struct ure was sugg ested for the D legf rom Dec11. D is now completing 161.8% time ratio to C.


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In the alternate scenario, c ended at Oct12 high, and it was equal to a leg. The d was thesmallest segment, and e (i.e. post-Nov12 rally) was a Double Combination which ended inJan13.

The post-Nov12 rally is retraced by 100% on Sensex, but more than 100% on broader indices. Thelarger picture of Diametric 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 startedthereafter.

NEoWave, remember, a l lows except ions to ru les at important market turn ing points or under

unusual conditions,like end of larger patterns or last wave, such as a Terminal.

Also, Triangles and Termin als are exception s to v irtual ly al l rules. Since Diametric pattern is m ade

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 ofDiametric, perhaps pattern impl ication ru les could no t be satisf ied to the ful l extent.

Does it real ly matter wheth er the Sensex achieves the pattern impl ic ation accurately with in the

time-price parameters, when th e general direction of the secular m arket has been largely -ve as we

suspected since Dec12 ?


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As we argued, the larger bear phase is already v isible in the broader m arket. Since Dec12 we turnedcautious as the rallies were getting smaller (shaping into a Terminal), and also because of the Jan -toppingcycle (discussed separately).

Terminal we assumed from Nov12 to Jan13, is a special kind of Impulse which occurs in the lastwave posi t ion, i.e. either as c of Flat/Zigzag or 5

thof an Impulse. Its internal structure is made up as 3-3-

3-3-3, instead of usual 5-3-5-3-5.

In other words, each leg of a Term inal would develop as a 3-legged o r 5-legged correctivestruc ture, l ike a Flat, Zigzag or Triangle. 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 draw n on th e broader indices, and the sam e hasbeen broken (as discus sed separately).

Sensex, consumed 59 weeks to retrace 84% of i ts preceding 13-mo nth fal l , which also was a 59-

week affair, as shown on the 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 thechart below :


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The 80% retracement level was consid ered and m arked as a pattern imp l ication for the 13-month

long Doub le Combinat ion m ove marked as C. Pattern impl icat ions, however, cannot be str ic t ly

enforced for th e legs of Triangle and Diametric, which are exception s to the general rules.

As per NEoWave, most channeled moves enclose a Complex Corrective structure involving x wave.Complex Corrective involving 2 correctives, joined by one x wave, is called a DoubleCombination, and carr ies a pattern impl ic ation of not more than about 80%.

Note that the C leg of Sensex, from Nov10 to Dec11, was a Double Combination, with two equal-sized correctiv es (see weekly ch art given above), and th erefore, carr ied a pattern impl ication of

80% retracement b y th e D leg.

Further, as depicted on the chart below, since Nov10, it has been generally useful to consider 61.8%to 80% retracement area as cruc ial for terminating m oves.


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As per Wave Theory, Flat is a 3-legged corrective pattern marked as a-b-c, where b corrects more than61.8% of a. It is also a 3-3-5 pattern where a and b carry corrective label of :3, and c is an impulselabel of :5.

Around 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 should normally end near such parallel. The channel indicates sim i lar i ty of i ts 3 internallegs, reason wh y Flats are cal led Flats.

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

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

Since 1stand 3

rdwere normal, we could have projected 5

thwave Extension. However, such a move

would project values slightly above the Nov10 highs, which would jeopardize the larger assumption ofBow-Tie shaped Diametric from 2008 onwards.

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

f rom wh ere a downward 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 somewhere in the month of Dec12 or near to it.


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

thco uld develop in terna l ly

as a 1stExtension Impu lse or Terminal .Since a Terminal always occurs at major turning point, it would

be able to generate the necessary downside power for the larger E leg.

In the 7-legged Bow-Tie shaped Diametric from 2008, one can see a reduction in magni tude fromA leg to D leg. The D leg is the smal lest segment of the Bow -Tie shaped Diametric.

The other half of this Diametric, i .e. E-F-G legs, should sh ow expand ing m agnitud es, and therefore,E should b ecome larger than the D leg. This can happ en only when E breaks the bottom Dec2011.

After breaking the 13-month long channeled C (from Nov10 to Dec11), we had suspected thatdevelopment post Dec11 has potential only to be marked as D leg of a much larger Triangle orDiametric from 2008.

This option was preferable because C leg from Nov10 was not an Impulse. A Non-impulsive C legcould only be part of a larger Triangle or Diametric.

BSE Dollex-30 Index

Meanwhile, since the FII activity turned a prominent factor in the Indian stock market, we examined thedevelopment of BSE Dol lex-30 Index, which sh ow ed a Head & Shoulders fo rmationaround Oct12 onits Daily chart.

Its downsides later achieved the Head-to-Neckl ine projection on dow nside, as we expected. Since theprojection level also matched with i ts 200-day EMA, we suspected som e pul l -back. It did pul l back

till Jan13.

This Index achieved H&S protection and has now recovered abov e its 200-day EMA.


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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.

As the past instances would show , once the year ly low gets broken, a min imum of 20% cut from

the low has b een a usu al phenomenon, though gradual ly . A 20% magni tude reduced from 15652

wo uld calculate to abou t 12500 for Sensex.

This level has not been touched so far , but should b e remembered as a cruc ia l leve l which m atches

with th e huge gap-up action (refer to the Weekly chart disc uss ing 32-week cycle) seen during t he

2009.


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32-Week time cycle

The development since Mar09 has followed a 32-week tim e 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 by hi t t ing the bottom on 26thAug.

This cycle had also ra ised the possib i l i ty of an up ward/s ideways phase that could s urv ive for 32

weeks from Aug11, and end either on 4thFeb12 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 form ing ane leg of a possible Extracting Triangle, which would remain smaller than the c leg. The e legdid remain sm al ler as susp ected.

As we already know, Extract ing Tr iangle is a p attern w hich s hows smal ler ra ll ies and bigger drops .Thus in one direction, it shows e < c < a, and in the opposite direction, it shows d > b.

Above 18000, Right Shou lder became bigger that the Left Should er, whic h appeared rejecting th e

Head & shoulders or Extracting Triangle argument. However, the 32-week time cycle may remainval id as a cycle even from here.

The Sensex was seen testing the Neckline shown on the chart, which did prove crucial, asSensex boun ced several times from the Neckl ine.

Ano ther idea wo uld be to mark the entire developm ent as a Diametric, instead of Extracting

Tr iangle , and the sam e is now marked on the c hart . These assumpt ions ind icate an incom plete B,

but co nf i rms o nly on faster drop below the Neckl ine, which is st i l l awai ted.


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

30% Principle

Al l major tops are character ized by 30% drop from the top v alue. This is norm al not only ins ide abear phase, but is comm only seen even ins ide a bul l phase too. The 30% taken out from the

current top v alue on Sensex (21109) wou ld be less t han 14800.

The total loss s o far, from th e high of 21109 to 15425, measu res around 28% so far. However, onBSE Small-Cap and MidCap Index, the loss from 2010 high does measure more than 30% .

Overal l , i t was argued much earl ier, that we wou ld see a topp ing form ation spread over 2-3 month

period beginning Oct10. This played out w el l as sus pected. Indeed, as was obs erved, 60% ofstocks topped out during Oct10 itself, and many have already shaved off much more than 30%,though Sensex i tse l f shaved off only 28%.

2450-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 theWeekly chart of Sensex below. One can find a bottom or a top getting formed at each of the Grid levels.


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Index during 2013 reacted thrice from the Grid level at 20250, and is now protecting the next l ower Gri d level at

17800.

The larger picture

Our markets, remember, has seen mul t i fo ld ra l l ies previously , each t ime con t inu ing for about 4 (four)years, after which , i t usu al ly enters a mu lt i -year con sol idation p hase. In other words, long-termhas always meant 4 years in Indian context.

Remember, Sensex rallied 11-fold from 390 (Mar88) to 4546 (Apr92)in four years, after which itconsolidated for 11 years from 1992 to 2003.

In 2008, it completed another 4-year rally from 2003, during which Sensex rose 7-fold from 3000

levels to 21000. It may now consolidate for 7 year, beginning 2008, preferably forming as aTriangle or Diametric.

We explained that the 14-month fall from Jan08 was a Triple Combination A leg of a large mul t i -year consolidation. The corrective phase beginning Mar09 retraced about 99% of the previous fallfrom 21206 (Jan09) to 8867 (Mar09), (which was labeled as a Triple Combination).The long er timerequi red wh i le ral ly ing is sym ptom at ic of its corrective label of B.

The rally from 8047 (actually beginning at 8867) was, therefore, considered as the B leg. The nextleg downwards would be labeled as C.Such a-b-c development since Jan08 would be


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considered part of the 2ndwave of wh at appears as a probable Terminalbeginning 2003.

Even though we saw the market reaching levels above Jan08 highs, the multi-year conso l idation isexpected to sh ape up l ike a large decade-long Diametric, looking similar to the consolidation we sawfrom 1992 to 2003. Our trad ing/ investment s tra teg ies should be designed accord ing ly .

The suspected corrective phase beginning Jan08 would be the 2ndwave with in the larger 5

thwave.

This 5thwave is suspected to be forming as a Terminal due to absence of impuls ive behavior in i tsinternal 1

stwave. The Terminal confirms 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 threeyears. Remember, Terminal developm 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 onthe chart below, '1984 was the beginn ing of 8-year long bul l -run t i l l '1992.In our Super-Cycle Degreecount, shown on ASA Long-Term chart under a separate paragraph, weve considered 1984 as thebeginning point for the most dynamic 3rd wave.

The next two important turn ing points occu rred exact ly 8 yearsthereaft er, in '1992 and '2000. Both

these turning points were marked by stock market scams, because of which, the leaders of the rally hadextremely difficult time later. For example, ACC, the leading stock of '1992 bull market, remained below itshighs till end of '2004. Similarly, the IT stocks, which were leaders of '2000 rally, lost as much as 90% oftheir top valuations by the year '2003.

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

In the previous 8-year cycle top during 1992, Sensex lost 57% from 4546 to 1980. In the next cycle top,the cut was almost 58% from 6150 in 2000 to 2594 in 2001 .

We had, accordingly, targeted sub -10k levels for Sens exprice-wise during 2008-09, and a min imum of13 months in to bear phase,time-wise. The price-time targets were achieved as Sensex dropped 63%

from 21206 to 7697. The yearly channel, shown below, which was used earlier to project 20000 level forthe Sensex during 2007, was broken when the Index moved below 17200. Break of th is long - termchann el also weighed in f avor of a larger corrective phase fol lowin g this 8-year cycle.


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

For Super-Cycle-Degree wave-scenario, consider following ASA Long-Term Index. This Index has beencreated by combining a very old Index compiled by a British advisor (from '1938 to '1945), with RBI Index('1945 to '1969), F.E Index ('1969 to '1980) and 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 5th

wave.

The detailed wave-count from 1984 onwards can be seen on the Monthly chart given below. The 2-4 lineshown on the ASA long-term Chart above, and Monthly chart below, would determine if the post 1984Impulse is a Super-cycle-degree 3

rdor 5

th.


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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 to the 1ston log scale. The Sensex is now forming the 5

thWave, and the same could

develop as a Terminal, because its lower-degree 1stwave from May03 onwards developed as aDiametric (which is a corrective structure, rather than an impulse). Within the non -directional legs, 2ndwas exactly 61.8% of 1st value-wise, and 161.8% time-wise. The 4th was 38.2% of 3rd value-wise, and261.8% 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-d-e-f-g Bow-Tie Diametric on the Monthly chart below. The chart below also shows 11-year parallel channel from Apr'1992 to May'2003. As shown, if one projects the width of this channel onupper side, such a projection gave 20000 as the minimum target. This forecast was achieved.


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.

As mentioned above, the lower-degree 1stfrom May2003 to Jan2008 appears to be a Bow-Tie Diametric,

marked as a-b-c-d-e-f-g. It is called "Diametric" because it combines two Triangular patterns, one initiallyContracting up to the "d" leg, followed by an Expanding one. The contraction point is the "d" leg, andthe legs on either sides of it tend to be equal. Accordingly, "c" and "e" were equal in "log scale", bothshowing 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 thecorrective structure in the 1

stleg, the higher-degree 5

thcould be developing as a Terminal. Since 2008, we

are into its 2nd wave, which could continue to develop over a period of 7- 8 years beginning 2008.


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As per NEoWave, break of 2-4 line confirms a Terminal development, and If the 5th

proves to be aTerminal, the Super-Cycle-degree label of 3

rdwill have to change to 5

th, because only a 5

thof a 3

rdcannot

be a Terminal. Only a 5thof the 5thcan be a Terminal. The Super-Cycle-Degree marking for 1stand 2ndasshown on ASA long-term chart, would then change to 3

rdand 4

threspectively.

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