MKT NEWS

TECHNICAL FORECAST AND MARKET POSITION FOR INDIA [SENSEX]

October 13, 2008

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CHANGES HAVE BEEN MARKED IN YELLOW
Time	Target	Trend	Reversal
SHORT TERM	11760-12230	Up	10500
MEDIUM TERM	9700	Down	12230
LONG TERM	9700	Down	13140

Explanatory Note:

Fear can often get the better of you. And if you have been on the right side of the market its often hard to give up on it. Several classical indicators are already oversold enough for a possible bottom here in the market. The Vol P/C ratio is for the first time in 9 months not confirming new lows in the market and this is a medium term bullish sign. Still given fears overhang and our desire to get the bottom right in the short term we will have to wait for trend reversal signs to say that the worst is over. Volatility between the 10400-12400 range is expected till more positive divergences develop in the short term and the lows are possibly retested. We should be in the last few weeks of a bottom formation and the exact levels are going to be hard to call. Short sellers should be cautious with tight stops.

OTHER MARKET SEGMENTS

THE VALUE WAVE : What are the inflection points in the process of market expansion and contraction in the wave context. How does it happen and what relevance does it have with the stock selection process in terms of psychology.

VALUE CHART 10/10/08 : Dow Transports, the lag indicator: This last index to top has a long way to go on the downside.

VALUE CHART 13/10/08 : Gold is not yet your money yet: For gold bugs this Diwali might not be the safest buying bet.

VALUE CHART 25/09/08 : Open Interest: Open Interest for the Indian market has been rising on a relative basis and is in kissing distance of the Jan highs.

SHORT TERM COUNT

The fall from 14221 has traced an exact 5 wave decline. The fifth wave of the decline has been extending for the last 2 days but should be almost over. A bounce back from Fridays lows is expected to be wave IV of c and should retrace 38.2% up to 11760. In case the bounce is larger it could surprise up to 50% at 12230 after which wave V down should resume. The lower channel line at 10500 should be the short term reversal for an up trend.

MEDIUM TERM COUNT

This brings us to the bigger picture. Pattern targets are all achieved at 10400. The lower end of the channel for the fall since Jan has been achieved. The weekly RSI is at 24, for the first time since 9/11 and second time in the history of Sensex. A/D, Vol P/C ratio, Call writing and Futures discounts are all at extremes or higher than the July low not confirming the new low. All these are indications that a major bottom may be near. Still most global markets have broken their lower channel lines in the recent panic and I wonder if we will too before its over. With the secondary neckline at 12500 broken this is the key resistance level from where selling pressure is likely to be exerted. Till crossed we cant call that the worst is over or a retest of the 10239 lows is likely. The bull market from 2001-2008 gets retraced up to 61.8% at 9700 odd and that remains the target in the worst case scenario from a long term perspective. Such retracements are often met in long term declines and therefore it remains an open target till 12230-12500 is crossed.

LONG TERM COUNT

The lower Bollinger band of daily weekly and monthly charts has been exceeded recently, and this often offers support. The Z wave and H&S neckline target is at 10400 odd and 61.8% of the bull market is at 9700. Therefore somewhere between 10400-9700 it might be fair to expect wave Z to end concluding a triple Zig-Zag from the Jan high.

Gold is not your money yet

A lot has been written about Gold coming back as the standard for money. While it might be eventually true which government would want it at these high prices? And history has it that monetary standards are established only after the worst of a crises is behind. So in that sense its a bit early. At least that is what the gold chart says. The global charts have for long indicated a major top in place but Gold in Rupee terms was still running away because of the falling rupee. This trend appears to be near its end. Whether because dollar gold is going to fall very fast now [I think so] or that the Rupee is going to halt its decline for some time or both. Below is the chart of Gold in Rupees [10gm futures]. It shows that the 5th wave is an expanding triangle in which wave E made a new all time high above the upper line of 13856 but could not close above it. Till Gold can show capability to stay above this level for a few days chances are wave 5 is over and the expanding triangle will push gold prices sharply lower to the 8500 mark near the 4th wave [and wave 2 of 5] low over the coming months. If true unless we can see Gold holding above 13856 it might be the worst time to buy gold this diwali.

Dismissing fears of global financial contagion impacting India, the International Monetary Fund has said that the country's economy will continue to perform well. According to Oliver Blanchard, Economic Counselor and Director of International Monetary Fund (IMF) Research Department it seems that overall, the Indian economy is going to continue to perform well.

According to the projections made by the World Economic Outlook (WEO) released recently by the IMF, India is likely to register a Gross Domestic Product (GDP) growth of 7.9 per cent in 2008-09, which may slip to 6.9 per cent in 2009-10. It is projected that the growth in India will come down from eight per cent in 2008 to seven per cent in 2009. But seven per cent is still a strong rate of growth as per IMF officials. A likely seven per cent growth rate at a time when the world economy is on a downhill path, would reflect India's internal growth dynamics.

Giving reasons for relatively mild impact on India of the ongoing financial turmoil, Blanchard said, "India is still largely a closed economy, has strong internal growth dynamics, from rapid productive growth, from its process of integration into the global economy that is still continuing".

India has registered a growth of nine per cent during 2007-08 and according to Prime Minister Manmohan Singh it is likely to register a growth of 7.5-8 per cent during the current financial year.

Comfort zones for bulls ..below 3200 to 3300 and for the bears..above 3600 to 3700.

Wow ......relief rally came despite huge glomminess thru the weekend..All and everyone were jumping over one another to give newer lower targets for this monday..well markets are markets, the footprint of the friday trade of higher lows..3198-3209-3258, held as I had written & also the uncoiling of the oversold positions was to take place , we rallied up doing higher highs throughout the day....Good thing is there was no huge selling in the last hour of trade. Technicals do help and its proved again today, only interpretation of signals is required..Hope people have benefitted from the technicals posted here.. So where to from here ..the speed lines will still remain valid..lets see how the drama unfolds in US markets today. Enjoy the good day today...cheers.

CONSOLIDATION WEEK

The speedlines/retracement levels are self explanatory, the damage is very severe and will take its own time to recover. Keep a check on higher lows/highs for direction of the market..All indicators are oversold and can turn anytime, specially this time the faster indicators in daily/weekly/monthly may turn up together which can give a good relief rally, which if held can become a bigger rally..one can pick shares of significance for quick profits in such rally..with sincere wishes for a nice weekly close this week.. ...cheers..

Sensex touches near 10K levels as projected. Dow touches its 2002-03 lows along with Nikkei and FTSE. SEBI tolls back restrictions on PNs. RBI cuts CRR by a further 100 basis points. Commodity markets feel the heat of Global meltdown. Tata Motors to relocate Nano plant to Gujarat. Industrial growth plummets to decade's low in Aug'08 to 1.3%.

Irregular C-Failure Flat results in the biggest Weekly drop on Sensex

Last week I argued, “The corrective (post-12558) possibly formed as an Irregular C-Failure Flat, wherein ‘c’ was 61.8% of ‘a’ … Irregular C-Failure Flat is an extremely bearish assumption to make, which can potentially take the Sensex below 10K levels within just 9-10 trading sessions … This projection is nothing but 161.8% ratio on its ‘b’ leg projected from end of ‘c’. As per rules, this should be achieved within the total time of the Flat, which was 9 days.” The required pattern implication called for a severe drop in order to achieve the sub-10K levels within a short time. Sensex obliged by dropping 2286 points to a low of 10240, close to our target, within four trading sessions of the truncated week. This weekly drop was biggest-ever seen on the Indian stock market. BSE Realty Index dropped nearly 25%, while Metals & Cap. Goods shaved off 22% each. Broader Indices were down by over 20%. Prior to this, the wave-structure showed us an Extracting Triangle within the bear market rally from 12514 to 15107, which was marked by reduction in rising legs and increase in falling legs. Such a structure was already indicating a severe drop. This Extracting Triangle was labeled as the “b” of the second corrective after “x” at 17054. Considering “x” at 17054, the “a” and “b” legs of the second corrective were equal time-wise, both exactly taking 38 trading sessions. Value-wise, “b” was 61.8% of “a”. From 15107, the drop to 10240, so far, is a suspected Zigzag, with Irregular C-Failure Flat into its “b” leg. Alternatively, the move from 15107 could be an Impulse, with Irregular C-Failure Flat becoming its 2nd wave. Last week I had projected sub-10K level within 9 days based on the rules which states that larger “c” or “3” can potentially achieve 161.8% ratio to “b” of such Flat as projected from end-point of the Flat at 13203. This calculates a downside target of 9857, which should be achieved within the total time of such Flat, which in our case was 9 days. Of this, five trading sessions are over. Irregular C-Failure Flat usually comes just before an Extended wave. Applying Rule of Extension, i.e. 161.8% ratio to the magnitude of “a” or “1”, downside projection can also show 9088 for Sensex. While we project such severe downsides in such a quick time, I suggested that we may look out and protect ourselves from value-buyers at lower levels. Remember, sharp drops can also lead to sharp counter rallies even within an overall downtrend. Immediately after the ‘Jan high, I had argued that a much bigger 8-year cycle is in the works, and calls for a deeper cut. This cycle shows a cut of 55-58% from the respective top value. 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. I, accordingly, argued that in ‘2008 we are sitting on such a cycle, and therefore, from its ‘Jan high of 21206, Sensex may drop to sub-10000 levels. With last week’s low at 10240, this forecast is almost coming true. Time-wise, I argued, “‘… such a phase would last for at least 13 months (beginning Jan’08), and may require consolidation thereafter, before the next bull phase can begin. As long as Sensex keeps on making lower highs, the bear phase continues.” While the value target is close by, the time targets are still to be achieved. Remember, in technical analysis, both time and price forecasts must be achieved. From the channel perspective, the upper limits for the bear market rally can be seen closer to the upper end of Purple channels, which I have been showing on the Weekly chart below. The lower channels are currently getting broken. Previous lows at 9875 and 8799, as marked, are levels closer to our projections based on the wave-structure. 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 also weighs in favor of the larger bear phase as per 8-year cycle. FIIs continue to withdraw The important hallmark of this bear market has been heavy withdrawal by FIIs. The following monthly chart of FII Net Investments shows a clear break of the 14-year long Monthly channel. I have shown an equidistant parallel on downside, value of which indicates that we may see more withdrawals to the tune of Rs.50000 crores. Remember, with FIIs withdrawing about Rs.50000 crores since ‘Jan has already brought the Sensex down by 50%. The FIIs withdrawing from equity market has resulted in Dollar outflows from India, reducing domestic supply of the currency for local importers. As a result, since ‘Jan highs, while Dollar appreciated by 20%, the FII net Investment had also reduced by about 20%. 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 ‘1984 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. 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 at 7656. The last corrective within this Complex Corrective phase formed as a "Non-Limiting" Running Triangle, the breakout from which has already occurred. 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 gave 20000 as the "minimum" target for Sensex. The same has been achieved already. 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 within the Super-cycle degree 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. 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, wherein 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 by more than 61.8%, except within the new pattern called "Diametric"). Diametric formation has 7 legs, marked as a-b-c-d-e-f-g. It is called a "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% gain. Similarly, "g" achieved equality 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 in the 1st leg of probable Terminal wave 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 the "Double Extension" scenario turns out to be true, Sensex could be projected to achieve even 50000+.

Technical Analysis - Stocks

Stocks now at 11% Typical of bear phase, recent heroes are now languishing lower, some even testing 11% level to their top value. Some of them are listed below :

1. Adlab Films

2. Indiabulls Real Estate

3. Bajaj Hindustan

4. Shashun Chemicals

5. Birla Power