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Viivveekk PPaattiill’’ss
Weekly Market
Analysis
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[Technical readings carried forward from previous weeks are shown in italics.
Readers can easily identify the new arguments which are written in regular font]
Last week we discussed, “lower top lower bottom (LTLB) didn’t happen
… Bulls successfully converted into HTHB on Daily close-only chart,
which defines Up-Trend, continues g-leg of Diamond Shaped Diametric
(DSD) from 24th Mar’20 … larger corrective phase from Jan’20 could be
a Triangle (Running/Contracting/Neutral/Expanding/Extracting) …
Sensex appears ready to decisively break (above) the 61.8%-mark …
Till Friday, Sensex made 4 consecutive ‘higher lows’ on Daily chart. Since
Mar’20, 7 consecutive higher lows is the maximum number. So, watch
middle part of the fresh week more closely … ”
Due to existing “higher top higher bottom” (HTHB) on the Daily close-
only chart, we expected Sensex to break above the 61.8% retracement
level to Jan-Mar fall. It did that in style, with a gap-up action on the very
first day of the week, which remained uncovered by the end of the week.
On the other hand, it Sensex settles firmly below the “Weekly gap-up”,
then it could be an indication that Bulls need to take rest, at least for a
while, and the “fundamental” reason for that could be high valuations in
terms of Nifty PE Ratio.
As can be seen on Nifty PE Ratio chart above, the valuations are back to
pre-Covid levels, so quickly, mainly on account of lower earnings during
the lockdown. The PE Ratio is now at 28.27, against ‘Jan high of 28.67,
despite Sensex trading over 13% lower than its ‘Jan high.
After the initial gap-up, the action over the week remained ranged, within
which, highest level was hit on Wednesday, as we suspected.
We, remember, were watchful in the middle of last week because on its
Daily chart, Sensex had already hit 4 consecutive “higher lows” as of
previous Friday. As we pointed out, 7 was the maximum number of “higher
lows” that Bulls could perform since Mar’20, indeed since Mar’19.
The ranged action for the entire week suggests hesitation as Sensex had
moved closer to the “Weekly gap-down” of 9th Mar’20, which is now
clearly marked on the initial Daily chart.
Bulls have successfully held this gap-up so far throughout the last week,
and made Sensex settle above the 61.8%-mark. Structurally, this forces
us to modify the labels, from a/1 to just “a” and b/2 to just “b”.
Remember, months ago, we had argued that larger pattern from Jan’20
could unfold as a Triangle if the fall, despite being “violent”, gets
retraced by more than 61.8%. Now it has.
We showed that Jan-Mar’20 fall had retraced the larger 3-year long g-
leg from Dec’16 to Jan’20 faster, in just 6% time.
Due to such faster retracement and violation of Red-colored 2-4 line of the
larger Impulse shown below, we suspected post-Jan’20 Triangle could be
4th wave (Blue labels) of the Terminal forming after ‘2003.
At Mar’20 low, 4th retraced 48% of 3rd on arithmetic scale, and 30% on
“Log-Scale”. Log-Scale retracement measures height of 3rd wave on a
printed Monthly Log-Scale chart and compares it with the length of the 4th.
Here we are considering previous move as starting from ‘2008 low.
For the fresh week, both the weekly gapping actions, gap-up of last
week on downside at 36021-313 (Nifty 10607-723) and gap-down of 9th
Mar at 36950-37576 (Nifty 10751-989) on the upside, are crucial areas to
watch out.
Existing Trend is UP, initial cues are +ve. Under the circumstances, we’ll
watch if Sensex settles above last week’s range, and if it does settle
above it, then we’ll watch how it tackles the Weekly gap-down area of
9th Mar.
_____________________________________________________________
Triangles can be of various types, but all of them have exactly 5 legs, no
more, no less. In Wave Analysis lingo, alphabets a-b-c-d-e are used for
marking internal legs of the Triangle. Each leg is a Corrective label-3
pattern, and no leg can be an Impulse.
Due to violent nature of the Jan-Mar’20 fall, which was sudden and not
seen for a long time, it appears mandatory that the larger pattern from
Jan’20 can only be a Triangle.
By the same logic, we suspected upward b/2 would mature on +ve news
like Covid Vaccine, Stimulus Package or gradual opening of economy.
Since last 10 years, we’ve been marking 5th wave of larger Impulse as a
“Terminal” because its lower-degree 1st wave (Blue label), from ‘2003 to
‘2008, was a “label-3” corrective structure & not an Impulse.
The ‘2008-09 fall was 2nd Wave of the Terminal. The 11-year rally till
‘2020 thereafter was marked as 3rd wave of the Terminal. The 3rd wave
formed as a 7-legged Bow-Tie Diametric, just like the 1st wave.
After 4th is over, 5th wave would open upwards to re-test Jan’2020 high. 5th
can “fail” or cross top of 3rd, but remain “smaller” than the 3rd. Time-wise,
5th could end around ‘2024, thus complete the overall Terminal in about
21 years, starting from ‘2003.
Remember, the 2008-09 fall started from the month of January of the
Calendar Year, just like current fall, per the “1st Quarter Topping Cycle”
we showed on the chart above.
The latest top was made at 42274, which almost exactly the value of VP’s
Grid level at 42300. This is shown on the chart below with up-down arrows
at the Grid levels, 2350 Sensex pts apart.
Previously, ‘1992 bubble was about “Old Economy” stocks. During ‘2000,
bubble was seen in “New Economy”, and during ‘2008, “Infra & Realty”
stocks built up the Bubble. History shows, all bubbles are get burst, sooner
or later.
As can be seen on the chart, Sensex has now fallen back closer to Modi-1
levels.
The 30000+ target was nothing but 100% (+/- 25%) breakout implication
of the largest leg of the Triangle.
As for the last multi-fold rally during ‘1988 to ‘1992, its correction had
lasted for 262.8% time ratio, from ‘1992 to ‘2003.
It was argued for a long time that all multi-fold rallies would be
followed by multi-year long consolidations. Sensex, remember, rose 11-fold
during ‘1988 to ‘1992, but entered a 11-year consolidation thereafter.
The Diametric formation from ‘2008 is also suspected because each of its
internal legs, except B, have consumed about 13 months so far.
The chart of Dow also shows similarity with its earlier long-term phase
between ‘1966 and ‘1982, which also shaped up like a “Diamond-Shaped
Diametric”.
The D-leg on Dow has now hit a New High, just like it did in the previous
phase. The D-leg could now form some topping formation over the next
few months.
Meanwhile, since the FII activity turned a prominent factor in the Indian
stock market, we examined the development of BSE Dollex-30 Index.
This Index shows Dollar-Value of Sensex. After it hit fresh highs, it has
now fallen back to below-2008 highs, and is now trading closer to Modi-1
levels.
The Small-cap Index on its Weekly chart is seen breaking below its
‘2008 highs, and achieving Category-3 correction.
BSE-500 Index
OBV
The Red line stands broken. Now watch the Black line.
Daily MACD/KST
The Red line stands broken. We’ll now watch the Black Line.
Weekly charts of MACD and KST are seen holding around the 0-levels
ever since Dec’16 (post-demonetization).
The Red line stands broken. Now watch the Black Line.
Nifty PE Ratio
The following chart shows PE Ratio plotted for Nifty-50 stocks, as taken
from data published on NSE’s website. While 28 appears to be the highest
PE Ratio during the last two 8-year cycle tops of ‘2000 and ‘2008, 22-23
appears to be the highest level otherwise under normal conditions. The
lowest levels of PE Ratio are close to 11.
Long term investors may keep a tab on the PE Ratio as and when is enters
the “Investor Territory” shown on the chart.
At the same time, long term investors should avoid fresh investments
whenever PE Ratio is in the Bubble Territory.
Sensex PE Ratio
All of us make our judgments based on official data like IIP numbers, GDP
figures, Inflation, Fiscal deficit, etc. We’d do well to consider most of these
data figures after due diligence.
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, 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.
In the previous 8-year cycle top during ‘1992, Sensex lost 57% from 4546
to 1980. In the next cycle top, the cut was almost 58% from 6150 in ‘2000
to 2594 in ‘2001.
The Net Investment figures for Indian Mutual Funds, as available from
SEBI website, showed positive structure till Aug’09. Mutual Funds are
usually late sellers in the market. Last time, while Sensex topped in Feb’00,
their sell-off began during ‘2001, and lasted for 3 long years.
(As the chart went into -ve, a base figure of 100000 crs. is now added)
Dollar-Rupee
The wave structure for Dollar-Rupee chart is shown below. The chart
has held the 61.8% retracement levels to the last rally marked as 3rd.
Recent action shows 5th wave reaching for new highs above its previous
high of 69.23, which is now under re-test.
Within the Impulse on Dollar-Rupee chart, the 3rd Wave was bigger than
1st. If 5th gets “Extended”, it could project Dollar to touch 88 level by next
year.
Dollar-Rupee is now seen testing its previous resistance near 69.23 for
possible support.
Dollar Index
The chart showed a triangular base, which now appears breaking on the
upside. We were watching the Blue resistance line joining its previous two
tops, which was broken above recently.
DOW
On one higher degree, its wave structure for the long-term corrective phase,
draws similarity with the long-term corrective phase from ‘1966 to ‘1982, as
can be seen on the chart below :
MCX Crude
Crude reacted from pull-back level to the larger Black channel, but has
now recovered back into the same. Watch the Green line as crucial on
downside.
After reacting from closer to the 61.8%-mark, Crude has now broken the
Gray support line, which can be a -ve sign for the time being.
MCX Gold
The probable wave-structure for MCX Gold has been presented below.
After hitting a Double Top during late ‘2012, gold broke the 2-4 line,
indicating the Impulse of one higher degree is over.
The drop from Dec’12 was shown as probable 4th of one higher degree,
which was projected to drop to around 25000 levels. Very close to the
projected level, some support was expected.
Overall, however, 4th could continue to develop for a period of more than
5 years from ‘2012 onwards, consuming more time period compared to 3rd.
Gold is now seen breaking above the Gray channel shown since last year.
MCX Silver
Silver was resisted at its last high marked in Red, and is currently
testing its last low marked in Green, and reacting from the Gray line.
The wave-count presented shows that the market is into the lower-degree
5th of the SC-degree 3rd or 5th wave.
The detailed wave-count from ‘1984 onwards can be seen on the Monthly
chart given below. The 2-4 line shown on the ASA long-term Chart above,
and Monthly chart below, would determine if the post ‘1984 Impulse is a
Super-cycle-degree 3rd or 5th.
Super-Cycle-Degree 3rd (or 5th) began since Nov’84. Its internal 3rd was an
“extended” leg, which achieved exactly 261.8% ratio to the 1st on log scale.
The Sensex is now forming the 5th Wave, and the same could develop as a
”Terminal”, because its lower-degree 1st wave from May’03 onwards
developed as a Diametric (which is a “corrective” structure, rather than an
“impulse”). Within the non-directional legs, 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.
While the 4th is shown as a 3-legged a-b-c Flat on the monthly chart above.
Alternatively, the 4th is shown as a 7-legged a-b-c-d-e-f-g Bow-Tie Diametric
on the Monthly chart below. The chart below also shows 11-year parallel
channel from Apr'1992 to May'2003. As shown, if one projects the width of
this channel on upper side, such a projection gave 20000 as the “minimum”
target. This forecast was achieved.
Disclaimer : While due care has been taken in preparing the above Analysis, no
responsibility can be or is assumed for any consequences resulting out of acting on it.