Recently I have been arguing that “Triple
Combination from Jan’08 has most likely ended in 14 months at
8867 on 20th Mar’09
… A faster move above
10470 and thereafter above 10945, along with higher
bottom higher top is, however, still awaited to confirm the
end of the corrective … End of any bear phase usually sees complete retracement of an entire last pattern, and that too, in about
less than 50% time of the pattern … A move above 10470 would
achieve that requirement because the 3rd corrective had
consumed 47 days, and we
are close to confirmation of faster retracement in 17 days, which
is indeed less than 50% time.”
The 3-day truncated week saw Sensex sending additional confirmation by crossing 10470, also hitting a high at 10932 and
closing 4.4% higher.
Index outperformed with a gain of nearly 14%. Small-Cap Index also
did better, finishing as much as 10% higher. Stock-wise, Reliance
Indl. Infra. proved a major gainer, up 158%, while
continued losing more, down 14% for the week.
Last week’s higher close
generated a consecutive 5th
week of gain for the Sensex. Note that ever since
Jan’2008, five had been maximum number of weekly gains. (The
last such stretch was recorded from 18th Mar to 5th
May’2008, within the move from 14677 to 17735).
Going by this time observation, along with the fact that the Sensex is now testing its 6-month highs near 11K mark, we may adopt
a cautious approach during the coming week if the Sensex fails to
trade above last week’s high of 10932.
Under these conditions, investors may have to go in for some kind of
hedging on their investments.
Trading above 10932, however, can maintain the positive bias for
higher targets of 11200-400 on the Sensex.
While faster move above
10470 has been achieved, we still wait for higher
bottom higher top formation on the long term closing charts, for
the final confirmation that the Triple Combination since
Jan’2008 is over.
Remember, as I said last time, once we have all these
technical confirmations in place “even
a catastrophic event may only result in a dip that creates a
higher bottom, and would be an opportunity to buy, though at a
higher level, perhaps at 50% or 61.8% correction level to the
Five weeks ago, based on the wave-structure for Dow, I had
argued that “Dow
will not break its recent lows for about a month. This had already
prompted me to postpone the time zone for occurrence of
catastrophe. The possibility of such an event is, however, not
totally eliminated, as it is a matter of history, seen at the end
of previous two bear cycles.”
Earlier I assumed the end of Triple Combination since
Jan’2008, finishing with a small Terminal
at 8867 (20th Mar’09).
With higher bottom still to be formed for confirmation, we may be into the next upward wave, “b” wave, which could correct
the 14-month long Triple Combination by as much as 50%.
This would target about
14500 over a period 1 year or more. Within this up wave, Index
may stop at about 11000, and then at 12500, before 14500 is
achieved. During the coming year, therefore, investors may
take their calls accordingly.
From hereon, the first
indication of weakness needs creation of a DOWN day, where both
high and low of a day is lower than the previous day.
can also be seen within the move from the most recent low of 8047,
each segment of rally
lasted for exactly five UP days on the Daily chart. In its
latest segment of rally post- 9520, Sensex
has now completed the 3rd stretch on 5 UP days. Will it
then correct for couple of days from here ?
We may, therefore, watch
if the Index can trade above Thursday’s high of 10932, and
breaks the low at 10655 in order to create a DOWN day as
required to generate weakness.
The initial guess, in such a case, would allow a 2-day kind of
correction. However, correction
lasting for more than two days can lead to a deeper cut testing
about 10590 / 10200 or lower.
As per 8-year cycle,
we saw three bear phases unfolding during the life-time of the
Sensex so far. These three
phases are as follows :
1. 1992 : Index dropped 57% from 4546 (Apr’92) to 1980
2. 2000 : Index dropped 58% from 6150 (Feb’00) to 2595
3. 2008 : Index dropped 63% from 21206 (Jan’08) to 7697
(Oct’08) [so far].
A study of these three bear phases throws up an interesting list of similar parameters :
1. Sensex lost about 60%.
2. It took 13 to 16 months
to achieve lowest point of the phase.
3. There were 4 to 5
4. There was a particular
group of stocks that performed at the tops, “Old Economy”
during ‘1992, “New Economy” during ‘2000 and
“Property” during ‘2008.
5. Cycle heroes faced
difficult times for 5-10 years.
6. Stock market Scam.
7. Scam related to cycle
performing sector, “old economy” during ‘1992, “new
economy” during ‘2000 and “property” during ‘2008.
8. The scam-tainted bull
was taken to jail, Harshad, Ketan, Raju.
9. The phase ended with a higher
bottom higher top with faster retracement of the last falling
10. The lowest level of the phase was hit after a catastrophic event unfolded, “Bombay Bomb Blast”, “WTC
Of this, the last
parameter is still awaited to get unfolded. Students of Technical
Analysis may note that “history
repeats” is one of the three basic pillars of Technical
While wondering when such an event takes place, I had explained
how to deal with the situation wherein bottom is made without the
occurrence of a catastrophic event.
I had argued that, “we may, look
for higher bottom higher top formation with faster retracement of
the last falling segment to make any judgment against the history.”
As per the parameters for the 8-year cycle, Sensex
has a habit of moving closer to the bottom after 4 to 5 sell
The 5th sell-off remained limited to 8047 due to high public
readiness to take benefit out of it, and absence of
catastrophic event required to push it lower.
Earlier I showed that the bear phase since Jan’2008
a Triple Combination. I had said, “Triple Combination can occur
only as the largest leg of a Triangle (or Terminal). Therefore, the fall from ‘Jan highs is likely to be the “a” or first leg of
the larger Triangle.”
A Triangle always has exactly five legs, to be marked as
a-b-c-d-e. Once “a” of Triangle is over, configuring as a
Triple Combination, “b” leg should move higher to about 50% of “a” leg. Of the
four retracing legs of a Triangle, 3 out of 4 should retrace at
least 50% of their respective previous legs. On confirmation, as
explained above, the current up-move will be labeled as the
“b” leg of such Triangle.
Since “a” leg would have consumed about 14-15 months since
Jan’08, the entire Triangle, consisting of five legs, could
consume 5 years.
The suspected 5-year
Triangle would be 2nd wave within 5th.
This 5th wave could be forming
as a Terminal. Terminal confirms if the Sensex drops below the 2-4 line on one higher degree. One
may see the last chart of this Report (Yearly chart), which shows
the 2-4 line and its value. Remember, Terminal development usually violates the 2-4 line.
From the channel
perspective, the upper limits for any bear market rally were
shown to be closer to the Purple lines shown on the Weekly chart
below. Note that the latest highs have broken above the
middle channel line.
Index is now testing the upper channel at about 11200 for the
coming week, where we may watch for resistance, if any.
Earlier I also argued that Previous bear markets (as per 8-year cycle), during 1992-93 and later
during 2000-03, had seen 4 to 5 sell-offs. Smart investors may please note this fact, and may risk their
capital in a
manner until our bullish confirmations, like
faster retracement of falling segment or higher top higher bottom
formation, are in place.
The yearly channel, which I used earlier to project 20000 level
for Sensex during ‘2007, was broken when the Sensex moved below
17200. Break of this long-term channel weighed in favor of the
larger bear phase as per 8-year cycle, and Index lost 62% from
Cycle and its implications
Sensex is assumed to be under a larger 8-year
cycle ever since its birth. 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 paragraph, I
have, in fact, taken ‘1984 as the beginning point for the most
dynamic 3rd wave.
next two important turning
points occurred exactly 8 years thereafter,
in '1992 and '2000.
Both these turning points were marked by stock market scams,
because of which 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, lost as much as 90%
of their top valuations by the year '2003, and most are below
their top levels even today.
year, we were sitting on this very important cycle,
which therefore, threw up similar possibilities.
Remember, every 8 years, market does see a deep cut in
valuations. In the previous 8-year cycle top during
‘1992-93, Sensex lost 56% from 4546 to 1980. In the next
cycle top, the cut was almost 58% from 6150 in ‘2000 to 2594 in ‘2001.
Time-wise, ‘1992 cycle completed the bear phase in 12-16 months,
while the ‘2000 cycle took 19 months only to hit the low, which
was then followed by 19 months of base formation before bull phase
could begin again.
had, accordingly, targeted sub-10k levels for Sensex price-wise,
and a minimum of 13 months into bear phase time-wise. Though the
price targets have been achieved, the
time targets are yet to be achieved. Remember, in technical
analysis, both time and price forecasts must be achieved.
Long-term investors should, therefore, wait till then. As
long as Sensex keeps on making lower highs, the bear phase
price \ time damage, I have been mentioning scam as a usual occurrence after 8-year cycle top. In the current
cycle, this may have, or will unfold further in the Global
financial markets. The size of the figures will, therefore, be
much larger than the earlier ones, and so will be the number of
people involved in it.
the history shows that the bull always goes to jail. (Raju
parameter that leads to the actual lowest value of the bear cycle
is the catastrophic event.
Such event would be a terrible
disaster or accident, especially the one that leads to a great
loss of life. The last two cycles had seen terrorist activities,
serial blast in Mumbai during ‘1993 and WTC tower collapse
events happen suddenly, without any warning, and their
catastrophic proportions are not known even while they are
happening. During ‘1993, one blast would have been normal, but
13 serially proved catastrophic. During ‘2001, 1st
hit could have been an accident, but two in succession was
events led to such desperation that the lows created thereafter
were never ever broken again, Sensex low of 1980 during ‘1993
and 2584 during ‘2001.
therefore, such events did, and will provide the best of the
investment opportunity to an investor, who is able to take it when
it comes. If so, we could be on watch, from now till whenever it
With recent accounting scam from Satyam, one more parameter
of bear market has unfolded as was argued for. The last remaining
parameter would the catastrophic event, which we are waiting for.
At 7700, having seen the required 62% cut from high of
Alternative scenarios for Sensex
far as larger wave scenario is concerned, I have been explaining
two alternatives :
first one assumes that a large Triple Combination corrective,
beginning Sep'1994 got over in Oct'2005 at 7656. 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).
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 forecast was achieved.
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 within the 3rd
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 (of 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.
are good ratios present within different waves, as explained on
the chart, to support this scenario. However, the Sensex
sustaining well above 13300 thereafter, may lead to a "Double
Extension" scenario by this alternative, wherein both 3rd as
well as 5th would be extended waves.
development into 5th wave was read as a "Diametric"
formation, as marked above. It was explained that the
well-channeled Complex Corrective legs, with a subsequent
correction of less than 61.8%, led to the suspicion of a
"Diametric" formation. (Remember, channeled moves
indicate complex correctives, which should normally get retraced
more than 61.8%, except within a 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 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% gains. Similarly, "g" would be equal to
"a", both showing about 115% gain.
Diametric could be taken as the 1st of the 5th (5th, which, due to
its corrective structure on one lower degree, could be developing
as a Terminal wave). This 1st leg Diametric appears to
have ended at 'Jan'08, and we may be looking at the 2nd wave,
which, due to its violent beginning, could be forming as a
"Double Extension" scenario was also shown on 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).
a "Double Extension" unfolds, Sensex could be projected
to achieve even 50000+. Break of 2-4 line, however, would confirm
the Terminal development inside the 5th, and would
therefore, restrict the upsides to much lower levels, though
higher than 21206.