|
Last week I had noted that, "contracting activity since
'Jan top is looking for a larger breakout now, probably in the
coming week itself ... From that perspective, We'll watch out for a
segment to get ‘fully’ retraced ... Complete retracement of
the last contracting leg would prove a decider ... High & Low of
the last leg were at 18137 and 17137 ... So watch
both these levels in the coming week from the point of view of 'Rule of 3'...
"
Explaining the "Rule of 3" I said, "... Sensex
(is) re-testing the crucial levels around its
200-day EMA ... it could be the last opportunity for the Index to
prove if it is finally holding them or not ...
Holding these supports on their 4th re-test is a
difficult task going by the 'Rule of 3' ...
Failure to trade above 17675-780 area or a 'close' below 17137, would confirm weakness for us."
Global cues ensured Sensex'
failure to trade above 17675, as a result of which, it slipped
below 17137 on Monday itself. Once below 17137, end of
"contraction" got confirmed as I specified, and just
like an unwinding spring, Index tanked a huge 1600 points or
nearly 11% by Friday. Small-Cap Index lost more, nearly 14%.
Realty, Banking and Power Indices lost over 18%, 16% and 14%,
respectively.
Monday's action, in fact, showed a gap-down below the 200-day
EMA. Friday saw another falling gap at 16211-253, both as marked
on the chart. These are our new technical resistance on the
upside.
Some support came in at the lower Red channel shown. However,
follow-up support "sustaining" above Friday’s high of
16211 is required to confirm this support. Failure to sustain
above Friday's gap could not only lead to retest of Red channel,
but would also see the Index reaching for Jan'08 low of 15332.
Our final target on the downside, is calculated roughly as
14500. At this level, Index would lose 32% from its ‘Jan high of
21206. This would be a “normal” shave-off as per the 2-year
phenomenon that I’ve already pointed out.
The current down-move would complete the time equality (8
trading sessions) with the initial fall (from 21206 to 15332) on
coming Tuesday. The 14500 level would also achieve 61.8% Fibonacci
ratio to the 'Jan fall.
Last
week's drop cuts the base-line for the 5-year long bull-market,
and the participants are slowly realizing that. With
its low at 15689, Sensex is just 357 points short of its 'Jan low
of 15332.
However, as we are moving closer to 14500, it may be a good
strategy to buy in panics from hereon. This strategy may appear
brave, and contrary to popular opinion, which is mainly the reason
why it should work. Adopt a contrarian approach of searching for
opportunities in panics, though only for a certain limited upside
objective for the time being.
Based
on the May-bottom cycle, I had already argued that
“Time-wise, this cycle may keep the market under pressure till
at least Apr-May of this year …” If, by May, Index holds the downsides closer to
14500,
then May-Bottom Cycle would open upsides for the Market.
On the other hand, failure to hold the lower range anytime
hereafter, could push the Index dangerously into the bigger 8-year
Cycle, which I have explained separately. As I warned already,
break below monthly and yearly support base-lines could indicate end of the
57-month bull-run. The Sensex
has now dropped below these base-lines
Remember, the Sensex, at
Jan'08 low of 15332, has already lost 28%, which is a usual
phenomenon every two years, even during the current bull phase. In
‘2004, it lost 32% from 6250 to 4227. In ‘2006, it lost 31%
from 12671 to 8799.
The bigger, 8-year cycle, however, calls for a much bigger, 55%
cut, every 8 years. In ‘1992, Index lost 57% from 4546 to 1980.
In ‘2000, it lost 58% from 6150 to 2594.
We’ll see if and when the 8-year cycle takes over, and take that
call by May.
The May-Bottom Cycle
The
current bull-phase is now more than four years old, wherein Sensex
multiplied 7 times from 2904 (May'03) to 21206 (Jan'08).
Cycle
studies indicate Sensex' tendency to hit a high in the first quarter every
year during this bull run, and low near every May. Since we
already have an important top in 'Jan this year, we may look for a
bottom in coming Apr-May in line with this cycle study. The low at
15332 had hit the trend line joining May'2004 exactly. Last week's
action, however, has broken this base-line.
The 8-Year
Cycle
A
much bigger cycle is the 8-year cycle, As shown on the chart
below, '1984 was the beginning of 8-year long bull run till '1992.
In my Super-Cycle Degree count, shown on ASA Long-Term chart under a
separate para, I have, in fact, taken it as the beginning point
for the most dynamic 3rd wave.
The next two important turning points occurred exactly 8 years
thereafter, in '1992 and '2000. Both these turning points were
marked by stock market scams, wherein the leaders of the rally
had extremely difficult time later. For example, ACC, the leading
stock of '1992 bull market, remained below its highs till end of
'2004. Similarly, the IT stocks, which were leaders of '2000
rally, had lost as much as 90% of their top valuations by the year
'2003.
This year, we are sitting on this very important cycle, which
therefore, may throw up similar possibilities.
The
Running Triangle from 12671 (May'2006) onwards
The Sensex's recent low at 15332 hits the "e" of this
Running Triangle exactly.
Weekly
channels
For
over a year, the following channels shown on the Weekly chart have
guided the Sensex movements almost exactly.
The recent low at 15332 was made
near the lower White channel. Last week, this line also got
broken. Remember, all of these channels were drawn over a year
ago.
Alternative scenarios for Sensex
As far as larger wave scenario is concerned, I have been
explaining two alternatives :
The first one assumes that a large Triple Combination corrective,
beginning Sep'1994 got over in Oct'2005. The last corrective
within this Complex Corrective phase formed as a
"Non-Limiting" Running Triangle, the
breakout from which has already happened. This has
been my preferred scenario for many years. (Remember, Non-limiting Triangles,
as the name suggests, do not impose any limit on the post-pattern behavior).
This scenario also combines well with the traditional channeling
technique. Sensex followed a parallel channel for 11 long years
from Apr'1992 to May'2003. As I had shown, if one projects the
width of this channel on upper side, such a projection also gave
20000 as the minimum target. The same has now been achieved.
As per the alternative bearish scenario, a Diametric had been developing
into Sensex' 5th leg of impulse. In this alternative, the 4th wave
ended at May'2003 low near 2904. The 5th leg, being a
non-extended wave of the Impulse, should not have gone much beyond 61.8%
ratio to the 3rd, which projected a maximum of 13300. In this argument, the 5th
wave was assumed to be the "non-extended" leg of the impulse
which began at 259 in Nov'1984 as shown below.
(in an Impulse pattern, only one directional leg
can be the extended leg.) As per this wave-structure, the 3rd was shown to be the extended
leg, which achieved exactly 261.8%
ratio to the 1st on log scale. The 2nd was exactly 61.8% of 1st value-wise,
and 161.8% time-wise. The 4th was 38.2% of 3rd value-wise, and
261.8% time-wise, as shown below.
There are good ratios present within different waves, as explained
on the chart, to support this scenario. However, the Sensex sustaining
well above 13300 may lead to a "Double Extension"
scenario even by this alternative, where both 3rd as well as 5th
would be extended waves.
The development into 5th wave was read as a
"Diametric" formation. It was explained that the well-channeled legs, with a subsequent
correction of less than 61.8%, led to the suspicion of a
"Diametric" formation. (Remember, channeled moves
usually indicate complex correctives, which should normally get
retraced more than 61.8%, except for the new pattern called "Diametric").
Diametric formation has 7 legs, marked
as a-b-c-d-e-f-g. It is called "Diametric" because
it combines two Triangular patterns, one initially Contracting up
to the "d" leg, followed by a an Expanding one, thereafter. 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% gain. Similarly, "g"
would be equal to "a", both showing about 115% gain.
This Diametric
could be taken as the 1st of the 5th (5th, which, due to its corrective
structure, could be developing as a Terminal wave). This Diametric
appears to have ended at 'Jan'08, and we may be looking at the 2nd
wave downwards within this Terminal.
 .
The
"Double Extension" scenario was also been shown below using
ASA Adjusted Long-term Index chart.
I've
created this chart combining Index figures compiled by a British advisor (from '1938
to '1945), RBI Index figures ('1945 to '1969), F.E Index ('1969 to
'1980) and Sensex (thereafter till date).
The chart shows the Super-Cycle-Degree count that I had been
presenting since many years ago. The labeling shows that the
market is into the 5th of the SC-degree 3rd wave. This 5th leg
(within SC degree 3rd) may
have begun either from 2904 (May'2003) or from 7656 (Oct'05). In
case of "Double Extension", Sensex could be projected to
achieve even 50000+.
|
|
Ambani
Pack
I
have been commenting on Ambani Group of stocks from time to time during this
corrective phase. Last time, on 25th Feb, I had shown the Index based on these stocks (belonging to
both the brothers), and shown the comparison with the rest of the
market in terms of Sensex.
Last week, while Sensex lost about 11%, Ambani Index lost 18%,
clearly under-performing in comparison to Sensex.
Compared to the base value of 100 at May'2003 low, Ambani Index
topped at 2072 in Jan'08, while Sensex topped at an Index value of
715. As of last week's low, Ambani Index hit 1042, and Sensex at
528. Overall, it means, Ambani Index lost 50%, which is almost
double of 26% loss seen on Sensex,
I had said, "The excessive rise in Ambani Group stocks is more prominent from
Aug'07. If it turns out to be a major top for the market, as
suspected on the basis of 8-year cycle, these excesses are likely
to get fully wiped off."
Remember, during '1992 and
'2000, previous 8-year cycle tops, the leaders of the rally
had extremely difficult time later. For example, ACC, the leading
stock of '1992 bull market, remained below its highs till end of
'2004. Similarly, the IT stocks, which were leaders of '2000
rally, had lost as much as 90% of their top valuations by the year
'2003, and most of them are still below their '2000 highs even
after eight long years.
The losers for the week mainly include stocks from this group.
They are :
|
