| Weekly
Technical Analysis |
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14
Sept 2002 |
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By Vivek Patil, India's foremost expert in Elliot Wave Analysis |
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50 people, including Law
Minister of the state, killed in run-up to J&K elections next week.
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1st anniversary of 9-11
passes off peacefully.
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US President, in his address
to U.N., calls for action against Iraq.
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PSU stocks lose ground
heavily on the bourses, following delay in divestment of HPCL/BPCL.
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Prospectively, Govt majority
PSUs will not bid for other PSUs which may be divested.
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Canara Bank and Allahabad
Bank plan Rs.540 crs. public issues.
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Sahara India group withdraws
sponsorship of the Indian cricket team.
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State Govts to swap
high-cost debts to reduce interest burden.
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Govt releases long-awaited
report of Second Labour Commission.
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Petrol and Diesel prices go
up by 50 paise and 40 paise, respectively.
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Industrial sector shows 6.4%
growth in July.
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India successfully launches
meteorological satellite.
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Supreme Court holds there is
no attempt to saffronise school syllabus by NCERT.
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| Sensex
decider at 3077 |
Sensex had a really bad start last week, opening with a negative
gap on Monday, in which the PSU stocks lost heavily as suspected.
The late recovery over the next two trading sessions was good
enough only to fill this gap. By Friday, however, the slide
continued with poor show by IT stocks.
Also as suspected, the plunge in the PSU stocks now confirms a
"Multiple Top" scenario in the BSE PSUs Index. The 1700
level will now emerge as a major hurdle for the Index in the
Future. Until the Index returns into above 1500 levels and
sustains above the falling gap, no bullish sentiment can be
expected for the PSU sector.
On the last day, however, it was the IT stocks that plunged with a
negative gap on the charts. One has to see what this results into
in the coming days. Some of these IT stocks have been analysed
below separately.
Meanwhile, over the last two weeks, the Sensex has already lost
about 140 points from our projected top of 3230. As stated
last week "Sensex is now on the verge of
further declines towards 2931 or below, if 3077 gets broken in the
next 5 days. Such a break would confirm the "Diametric"
scenario (bow-tie variety) for the 4-week rally, as the pattern
confirmation requires the last leg to be retraced in lesser time.
Till then, consider 3197 and 3227 as resistances on the upper
side, and 3126 and 3077 as supports on the downside."
The 3077 level is now under focus for the above-mentioned
confirmation by Tuesday next week. An absence of such confirmation
would signal a sideways action, perhaps another corrective as a
part of complex corrective from the bottom of 2931. The upside,
however, would be capped at 3197 or 3227.
If, on the other hand, the 3077 is broken, it would settle the
Sensex in a downward phase, that would test 2931 next in the near
future.
ASA
World loses ground further
The markets
world-over lost further grounds last week, as the 1st anniversary of
9-11 went by, and as US President issued warnings of attack on
Iraq.
Based on
the wave-count, explained below, the medium to long-term scenario
in the ASA World Index continues to be bearish.
The chart of ASA World Index shows a Complex Corrective starting with an Expanding Triangle. The
Expanding Triangle starts from Sept'2000 and ends in Sept'2001.
This has been followed by an "X" wave, which came up
exactly to the extent of 61.8% of the Expanding Triangle. The
second corrective after the "X", is currently on its
way downwards, and may take shape of another triangle. The
"A" leg of this
second corrective should fall below the Sept-2001 bottom sooner or
later.
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| Head & Shoulders
scenario |
After breaking the
neck-line of the formation at 3100, the Sensex had pulled back
above it, opening up the possibility of cancellation the H&S
formation. The Sensex, however, has gone back below 3100
levels.
The above formation, however, could also be recognised in Elliott terminology as a
"Diametric Formation", a 7-legged pattern ending at a
failure point. In case of Sensex, this pattern would have ended at
3366 on 10th July' 2002. I'll integrate this pattern in the
overall wave-count later, as and when required.
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3759
level remains crucial on the upper side
Sensex has, so far, failed to cross the crucial 3759
level on the upper side. As previously explained, I've been considering TWO alternative scenarios for the wave-count on
Sensex, and the choice of the best of these two scenarios hinges on whether the Sensex
is able to cross 3759.
The entire rally from Sept'01 bottom is to be labeled either as second
small "x" within a Triple Combination OR as D leg of Extracting
Triangle within a Double Combination, depending on whether Sensex is able
to cross 3759. I continue to consider these alternatives until we get
our confirmations.
It may noted that Sensex has squeezed itself in 2600-3759 range
for over a year now. I've, however, already warned that if the Sensex fails to reach a level above 3759,
the Triple Combination scenario would have an upper-hand, with its
dangerous consequences, which include the possibility of Sensex falling
below 2615. So long as the Sensex does not cut across either 3759 on
the upper side or fall below 2615 on the downside, we'll have to
continue to consider both these scenarios as viable
alternatives.
The similar level (to 3759 in Sensex) in the broader BSE-500 Index comes to around
1230. Those looking for a secular trend may consider this level as
a crucial decider for the Future. The Index shows a weekly falling
gap for the last week, which is a bearish reading technically.
This gapping level around 1140 should be the first resistance that
the market has to deal with, before any bullishness.
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Triple Combination |
The Triple Combination scenario assumes the rise
from Sept'2001 bottom labeled as the 2nd small "x", which is as marked
below :
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The maximum extent for this small "x" is taken as 61.8% of its
previous corrective, i.e. 3755 or almost 3759. Mind you, though the Sensex
did move beyond 3755, the end point of the wave is at 3663, i.e. below
3755.
Once this wave is complete, it would then be followed
by the third and the last corrective, which, in a Triple Combination
corrective, usually develops into a Triangle. The initial leg of such last
corrective could also fall below the previous bottom of 2615.
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Double Combination |
If, however, 3759 gets broken in the near future, then, as per the 2nd alternative explained
previously, the things would fall into the realms of Extracting scenario.
The bear phase would then become a Double Combination with an "Extracting
Triangle" or "Contracting Triangle with reverse
alternation" in the second corrective position, as marked below :
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In an
Extracting Triangle, "b" leg is always very small. Among the
"a", "c", and "e" legs of an Extracting
Triangle, one can observe a reducing magnitude, while between the "b" and
"d" legs, one can observe an
expanding magnitude. The "d" leg will almost always be the most
complex leg of all the legs, and will have a greater magnitude than the
"c" leg. The "d" leg becoming bigger is, however, not
a requirement in a Contracting Triangle with reverse alternation
pattern.
This would, in short, imply that the "e" leg, thereafter, will be smaller than "d" leg,
and therefore, will NOT fall below 2615.
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| Sensex has followed the 2-year cycle |
During the entire lifetime of Sensex, it has
followed a 2-year cycle ever since March'1980. Almost all the important
turning points on the monthly chart (as shown below) lie on this major
cycle.
The month of March'2002 was also right on this cycle, and the Sensex has
turned downwards. We've already seen five months of decline as a
result of this cycle.
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Monthly channeled scenario indicates a bottom |
Those who could not perhaps grasp the wave-count and its implications, can look at
the monthly picture of the Sensex, which has
already seen the long 9-year channeled corrective phase from 1992 onwards.
The Sensex has just seen the bottom of this corrective channel, an ideal area to accumulate the
stocks at reaction. We'll, however, have to see how this channeling
concept works out in view of the above discussion. Watch the lower end of
the channel once again.
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Technical Analysis - Stocks
As
against a 10% rise in the Sensex (from August bottom), the BSE It
Index had risen by almost 28%, thus, contributing significantly to
the bullish sentiment in the market. Major IT stock, however,
showed a fall on Friday, and that too with a downward gap on the
charts.
A "Falling Gap" is a significant bearish reading
technically. One has to see how this reading gets reflected in
these stocks during the coming days. If you are still holding
these stocks, please be cautious, and if required, review your
strategy. Support at the trend-line shown is possible, but it is
better to be watchful.
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1. Infosys Technologies
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2.
Polaris Software
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3. Satyam
Computer Services |
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4.
Visualsoft
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5.
HCL Technologies
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Appendix |
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Super-Cycle Degree count |
As Sensex is available only from April'1979, this writer has constructed "RBI
Securities Index" based on the RBI Index numbers of Industrial Securities, in order
to get a long-term picture dating back to 1946. The same is used here to show a
Super-Cycle Degree count for the Indian stock market.
As can be seen on this chart, the Super-Cycle-Degree 1st wave ended in Jul'46, one year
before India's Independence. The Super-Cycle-Degree 2nd wave continued for 37 years from
Jul'46 to Apr'83 as shown below. In Elliott Wave terminology, this was a Double
Combination a-b-c-X-a-b-c as shown on the chart.
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Within the Super-Cycle-Degree 3rd, the 1st Cycle-degree
wave finished in Sep'94 |
From Apr'83 onwards, we are in Super-Cycle-Degree 3rd, within which, the 1st
"Cycle" Degree wave finished in Sep'94 as shown below :
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Cycle Degree 2nd is mimicking the Super-Cycle-degree 2nd
wave |
We are now in the 2nd Cycle Degree wave (within the Super-cycle degree 3rd as discussed)
ever since Sep'94, and the same is expected to follow or "mimic" the Super-Cycle
Degree 2nd (which was from Jul'46 to Apr'83). So far, the first 20-21 years' pattern (of
SC Degree 2nd) has already been exactly mimicked by the Cycle Degree 2nd wave from Sep'94
onwards, as shown in the Sensex chart below :
(compare this with RBI Shares Index, showing Super-cycle-degree 2nd wave, as given
above. Please compare only the pattern, and not the wave-markings)
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The count within the Cycle-degree 2nd wave |
By
observational rule, correctives consume more time than the impulses they are correcting.
Therefore, the current 2nd cycle-degree wave, which is correcting the 12 years of 1st
wave, should consume more than 12 years from 1994 onwards, finishing only after
2006.
The Cycle Degree 2nd (from Sep'94 onwards) is also likely to be a Double Combination
a-b-c-X-a-b-c. The first corrective within this Combination completed in Dec'98 (at Sensex
2741), which was a "Flat" with Expanding Triangle in its "b" wave. The
"c" of this Flat was a Terminal, as shown above.
The first corrective has been followed by a "Large X" wave, which seems to have
finished at 6033 in Feb'2000, finishing well beyond the required ratio of 161.8% for a
large-X to the first corrective.
We are currently into the "a" leg of the second corrective, the count-details of
which can be found in the main part of this newsletter.
Disclaimer : These notes/comments have been prepared solely to educate those
who are interested in the useful application of Technical Analysis. While due care has
been taken in preparing these notes/comments, no responsibility can be or is assumed for
any consequences resulting out of acting on them. |
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