Major Indices : S
ensex : 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.
.GIF)
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.
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.
.GIF)
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.
