Target 12858...

Nikkei (13857) Intermediate trend: Bearish

In the previous report (13th May -13953), I said, expect a continuation of the uptrend till 14390; stop for the bulls is placed at 13620. Since then, the index has managed to float above the stop of 13620(even today) while achieving high of 14601, as against target of 14390.However; the trading is confined to a 'narrow’ range of 13700-14400 for quite some time. Now this standoff is likely to get resolved in the near future, may be in favor of the bears. It seems that the bulls are loosing control over the market after a sharp rise of over 23% since Mar lows. The weakness is also evident from the faster retracement of the last segment (13810-14469)-see chart. The upside is caped at 14300; while on the downside 13620 will be crucial, once broken, expect 12858.

Heading for 2250-2200....?

Shanghai (2831) Intermediate trend: Bearish

The index has reversed the trend with classic “Head & shoulder” reversal pattern (monthly charts), and lost over 56% since Oct 07. The reversal in the trend is unlikely in the near future, and it may drift towards a "possible" stoppage area of 2250-2200 i.e. previous significant top achieved in June 2001. For the extreme short term trend, a close above 2945-55 is must, if done (difficult task); expect a trading bounce towards 3200 region.

Global markets....weakness persistant...(Delayed post)

Dow Jones (11842) Intermediate trend: Bearish

In the previous review (Dow was at 12307), I said (previous review)"the intermediate trend is down; the trading is still confined to falling parallel channel; as long as it trades below 12370 the downtrend will persist and will retest the 12k levels. Dow made a low of 11819.So far the falling channel is intact, resultant continuation of the downtrend. Now revise stop to 12085(close) from earlier 12370;if seen, expect a spike(corrective) towards 12200-12250 region. From the medium term perspective, the Dow has already given "faster retracement" of the previous intermediate uptrend (11700 to 13200) on weekly "close" charts. This is a second stage confirmation of a larger degree weakness. First stage confirmation was failure to close above 13.2k (see past reports). On the downside, our near term target is placed at 11640-11550.

Sensex....Change of Polarity .....(Delayed post)

Last Week’s Highlights

 Our Comments: Significant top (long term) has been created at 17335 (roof); Intermediate trend is also down; the corrective rally (within the intermediate downtrend) is like to make attempts for recovery, if the Sensex sustains above 15553, towards a target objectives of 15770 or 15950. On the downside 14300-14500 area is likely to act “last resort” for the bulls, if broken; target is 13779 or even 12316.  Actual Movements: The Sensex made initial efforts for recovery and achieved 15770 (actual high 15789 lasted from a minute after strong opening on 18th June 08) i.e. exactly on our target and tanked huge 1632 points (10.34%) in just 4 trading sessions. Current Week Previewed  Highlight: The long term trend remains bearish (major top at 17735) and recovery in near future is likely to be a trading opportunity rather than investment. Intermediate trend is also bearish; however, the bulls are likely to get some breather if the Sensex is able to close/trade above 14510. Then expect a corrective rally till 14750-14890. On the downside, immediate target for the bears remains same i.e. 13770. The ongoing “rout” in Indian market is not an exceptional event; but it is a part of “global equity meltdown”. Read about Dow, Nikkei & SSE …...all are sailing in the same boat, only gravity of the fall is different.

Sensex (14293) Intermediate trend: Bearish

The faster retracement of previous really (14677-17735) has given its implications with a drastic fall below the crucial trend deciding zone of 15332, decisively. Since the beginning of the bearish trend in Jan 08, we had witnessed sharp rallies from this level; now it will act as a “major” hurdle for the bulls, due to change of polarity concept. (Support turning into resistance). As discussed in previous reviews (5th & 25th March), since 2003 (start of the bullish trend) the Sensex has observed “May-bottom” cycle with 30-32% fall occurring at every alternate year (2004 & 2006). In the present fall, the Sensex has broken this phenomenon, resultant a “structural” change after a strong bulls run from May 03-Jan08 of over 18k points rally. For the intermediate trend, the recent “break away” gap at 15789-15259 will be a major hurdle for the bulls. Previous (such) gaps created on 16th Jan 08 (20203-20079) & on 6th Feb 08 (18509-18274) remains “uncovered”, even today. Hence, considering the overall weakness in the trend, this recent falling gap will be a “major” hurdle for the bulls. In short, till 15789 seen (difficult task), the intermediate trend will remain bearish. For the near term, the Sensex may give trading bounce if “close above 14510”. This behavior will be in line with usual tendency of markets to do “least expected” moves (i.e. contra moves to that of popular perception). If it does gives a rally (corrective) then expect a rise up to 14750 or 14890. As a matter of principle, technical analyst studies/reveals the “effects” of price movements, while “fundamental” analyst goes for “causes” of the price movements. The answers for “why (i.e. causes) could be many and will be deceptive or ambiguous; but the answer for “what” (i.e. effects) will be precise and tradeable. It’s all started with “sub-prime”, then “derivative trades, then “inflation” and now “political uncertainty”; after few thousand points fall, the reason would differ, almost certainly.

Bulls making attempts to regain control…

Sensex: Last Week’s Highlights Our Comments: The reasons for positive bias on the markets, in the near term, despite of strong bearish sentiments are: a) The Sensex has formed bullish hammer pattern which indicates a rejection at lower levels, b) After a consistent fall the Sensex has created a huge ‘falling gap’ at 15526-15202 area, but we suspect this gap could turn out to be an ‘exhaustion” gap i.e. end in the minor trend, c) Our proprietary tools indicates a short term recovery if the Sensex “closes” above 15202. As such expect a bounce till 15526 i.e. an attempt to ‘fill” up the falling gap. If sustain above this then only we can expect a meaningful recovery towards confirmation of ‘e’ wave. For the medium term trend, the Sensex should not fall much below 14677 or say 14500. Once its start trading below 14.5k, the more serious downtrend will open towards next target objective of 13779 and then 12316.  Actual Movements: The Sensex created a new low at 14645, slightly below the previous low of 14677, and recovered, as expected, on the “fundamentally” adverse news. Yesterday it has created a high 15553, as against our expectation of 15526. Current Week Previewed  Highlight: In the near term, the bulls are likely to continue their recovery attempts. Watch 15553 on the upside, if sustained then expect 15770-15950 in the next few trading sessions. Else, range trading between 15500-15180 area. Overall, the large degree weakness persists and as of now the market is in a trading range. Detail Analysis:

The Sensex has failed to defend the (previous) panic low of 14677 (18th March) and created a new low. Further, it has also completely retraced the previous rally from 14677to 17735 in a faster time; as against 29 trading sessions for rise, the new low has been created in 25 trading days. By rule, faster retracement indicates a significant top has been created at 17735. The larger degree uptrend is ruled out till this level is surpassed. On the daily charts, the Sensex has exactly bounced back from the lower end of the parallel channel (see chart) and seen recovery attempts by the bulls. Near the lower end of the channel the “street” was nervous and seldom thought of recovery, but it happened, as the market has a penchant of making deceptive moves. Since then, in a corrective up move, so far, the Sensex has gained over 900 points. There could be further positive attempt by the bulls but for that the Sensex needs to close & sustained above 15553, i.e. yesterday’s high. If it does, then expect continuation of the corrective rally till 15770-15950 seen. If it fails to sustain above 15553, then expect a range trading in 15500-15180 area for a while before deciding future course of action. For the long term trend, as discussed in the above Para, 17735 is a ‘roof’. On the downside 14300-14500 area is likely to act as a ‘last resort’ for the bulls. If the Sensex drops below 14260, the possibility of extracting triangle will be ruled out and further downside will be opened, towards the target objective of 13779 or even 12316. Trade accordingly.

12370-Critical resistance!

Dow Jones (12307) Intermediate trend: Bearish In the previous review (Dow was at 12876) on 13th May, I said “The Dow has touched 13191 as against our target of 13200 & once again fallen back in a trading range of 12700-13000; Is it an end of the corrective rally started from Mar low? The answer lies in breaking of resistance zone of 13190-13220, if failed to do so, the downside till 12200-12050 looks certain”. Within the next 4 trading sessions, more precisely on 19th May, the Dow had attempted to break the resistance zone of 13190-13200. However, it could achieved only 13137 and given up. Since then it has moved down, slowly and steadily, and seen 12029 on 11th June 2008; exactly on our target i.e. 12050. Near term view: At present, the trading is still confined to falling channel. (See chart). As long as the Dow is trading below 12370, highest value of the channel, the current downtrend will persist, may be retest of 12k is possible. If broken above 12370, expect recovery efforts till 12602.

Sensex on the brink...

Major Indices : Sensex : 15066 Nifty : 4500 Intermediate Trend: Bearish – Stop 16632 Key Technical Levels : 15970- on the upside, 14846- on the downside Target achieved: It was said – in the previous review- “markets are likely to continue the downtrend started from 17.7k till 15.3k is achieved; it could be a last down move of the fall started from 21206; it’s difficult to anticipate weakness below 15.3k levels; if it happens the situation will be aggravated further & it will be another indication that “all the negatives” are not yet factored into the price; on the upside close above 16626 is must for revival”. The Sensex achieved 15.3k but it went below the threshold to 14846, i.e. just 165 points away from the low achieved on 18th Mar 08. This action, i.e. not breaching the previous low of 14677, despite of absolute bearish grip, has added more confusion in already timid situation. Is it really a last down move? Although the Sensex has averted the situation of a new low, as of now, and recover more than 1.5% from the intraday low, it needs to be bounce back above 15812-15976 area, quickly , to confirm the “presence” of the bulls (strong hands), if not a automatic reversal in the trend. The reasons for this positive bias on the markets, in the near term (short term), despite of strong bearish sentiments are i) Sensex formed bullish “hammer” pattern on the Candlestick chart, suggests “rejection” at lower levels; however it need to trade above 15000 levels consistently to have bullish implication of this pattern. But failure to do so will open further downside. ii)Falling “gap” created (yesterday) in the area of 15526-15502; such a huge gap down price action that too after a consistent fall (from 17.7k) might turned out to be a “exhaustion” gap i.e. end in the previous minor trend. Hence the bulls must attempt to close this gap on close basis i.e. a close above 15526. iii) Our proprietary tools indicates a recovery (may be short term) in the Sensex once it “closes” above the 15202 i.e. yesterday’s high. As far as the long term structure of the market is concern, here are the key technical observations which suggest “it’s not all over”, yet, for the bulls. a) We suspect a Contracting triangle formation on the charts beginning 21206. Triangle is a 5 wave pattern- 3 legs in the direction of the trend & 2 legs in opposite directional of the trend. See the chart. Accordingly we are likely to be in the last wave i.e. “e” wave. First down move “a” (from 21206-15332) was of 5866 points; the second down move “c” was of 3450 points (from 18137-14677) and the current move “e” has so far consumed 2883 points. This reduction in the magnitude of the fall in each leg (5866-3450- 2883) indicates a contraction/loss of power. However “e” leg, if not ended near 14677, should not fall below 14260 to maintain the fall less than 3450 points. On the upside, the Sensex needs to cross the b-d line (present value near about 17.5k) to confirm the positive attempts in the direction of an upward breakout. b) On the monthly chart, the Sensex had invariably taken the support at previous “high” of each intermediate up move. See the monthly chart. The previous high (Feb 2007) is at 14723. Since the Jan 08 low, the Sensex has averted the fall below this level, thereby maintaining the long term bullish structure. c) As discussed earlier (ref 25th March report on the Sensex), sharp cuts of 30-32% on the Sensex, every alternate year, is a common phenomena, so far since the beginning of the present bull run in 2003. As long as Sensex maintain itself above, say, 14500 area, the bullish structure is maintained. Conclusion: As anticipated, 3 weeks back, the Sensex has achieved our target (down) of 15.3. But a close below this threshold level has raised several doubts for the “reversal” in the bearish trend started from 21206. We will continue to hold out cash positions till the Sensex gives confirm bullish reversal. A close above yesterday’s high of 15202 will be the first indication of a short term recovery. If the bulls able to “fill” up the gap down area of 15526, we can expect a meaningful recovery towards a confirmation of “e” wave. Bearish Scenario: If the Sensex continues its downtrend even below the yesterday’s low, then the recovery is least expected. In such case expect a dip up to previous low of 14677 or even 14500 in a next few trading sessions. Once the Sensex starts trading below 14500, the more serious downside, price wise as well as time wise, will be opened and the next immediate target will be 13779 and then 12316 (Feb 07 low). All the major sector indices are trading below their respective lows of Mar 08, indicating a gravity of the situation. On the stock specific front the situation is worse and almost all the leading stocks in Banking, Capital Goods, Reality, Power sectors are trading almost 60% down from their Jan 08 levels. Failure to move quickly above 15.8-16k levels in the near term, or even by month end (which is also a quarter end), may severely damage/alter the long term equitation’s on the monthly/quarterly charts. In such a case, I suspect a Head and Shoulder bearish reversal pattern will emerge which would lead to a fall even below 10k in the Sensex in the next 3-4 quarters. However, even if this scenario unfolds, the Sensex is unlikely to fall in a straight line. It may provide number of short term rallies thereby giving ample opportunities to trade. Position your trading/investment positions accordingly. Overall, the bulls are on the verge of collapse, after a spectacular rise from 2900 in May 03. There could be a bitter battle between the bulls and the bears, in the next few trading sessions, simply for the survival. It is very unlikely that such a major shift (on the either side) will happen so easily. Actions of the strong hands (institutions/ informed big players) will be crucial for deciding the direction/trend of the market. As such, smaller hands can keep themselves away from the markets till the things get resolved. Aggressive investment buying (trading is permitted) just because of 60% fall in the value will be a trap if the Sensex falls into the next bearish cycle. Remember, the price discounts “everything” well in advance, as such the worst “fundamental” news/shocks will be an excellent opportunity for the long term “base/bottom” formations, but when it will happen is the million dollar question.

Last down move..?

Major Indices: Sensex : 16063 Nifty : 4739 Intermediate Trend: Bearish – Stop 17212 Key Technical Levels: 16626- on the upside; 15848- on the downside It was said – in the previous review- “Bears are in control of the market; as long as the Sensex is trading below the recent falling gap area of 16626, the recovery or even short term bounce is ruled out; if failed then fall up to 15850 or 15300, in next couple of weeks looks imminent”. The bulls tried to fight back and posted a high of 16666 for the Sensex, as against the falling gap (highest point) area of 16626, but failed to protect the territory with a “close” above 16626, thereby losing over 670 points in the last 3 trading sessions. After yesterday's sharp cut, the bears had successfully dented the strong support area of 16000-16200. In the process the Sensex has also closed below the falling parallel channel, confirming the weakening structure. On the downside, we expect, the Sensex should settle down near about 15300 region, at least in the near term. As of now it’s difficult to anticipate the weakness below 15300 region. However, if it happens, then the situation will be aggravated further. Market discount ‘everything’ well in advance; as such in this current slide from 21k+ level, it must have discounted many economical, political & many other factors, already. But if market slide down even below the 15.3 -15k level, it will be a great concern and another indication that “all the negatives” are not yet factored (discounted) in the price. Overall, we are of the view that, the daily as well as weekly charts confirms the continuation of the down trend started from recent high of 17.7k, with a near term price objectives of 15.3k. On the upside firm trading & close above 16626 will be the first sign of bullish revival (not a trend reversal). Position your trades accordingly