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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]

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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 … ”

Respecting its existing Up-Trend, Sensex started with a gap-up action


on Monday, and touched its highest level on Wednesday, which was
exactly the mid-point of the week. However, after Monday’s gap-up, it
mostly traded ranged through the week. The net gain of 573 pts or 1.6%
was accounted for by Monday’s gap-up action, as Sensex gave up all of its
initial gains on Wednesday. Nifty’s close on Monday & Friday was similar.
Despite that, Sensex managed to form a smaller, but 4th consecutive, Bull
candle on Weekly chart, which carries a gap-up area below its bottom.

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While Bajaj twins/IndBank/Reliance contributed to the gains on Sensex,


ONGC/ITC proved draggers. The Metal & Bank sectors led the gains
otherwise, and A/D Ratio also settled +ve, at 1.3:1.

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.

Since the gap-up remained uncovered, it now shows as a “Weekly gap-


up”, which is generally considered as a +ve sign, provided dips, if any, hold
the technical support available at this gap-up.

We may, accordingly, watch the “Weekly gap-up” area of 36021-313


(Nifty 10607-723) as a crucial downside for the fresh week. Holding it
would be +ve, especially if Sensex is able to settle firmly above the top of
last week’s tight range later.

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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.

The hesitation also appears to be the result of post-Mar recovery


retracing 2/3rd of Jan-Mar fall in exactly 161.8% time, which players
thought are crucial price-time ratios.

Such hesitation can, however, lead to Bull-unwinding only if Sensex now


firmly settles below last week’s gap-up area, i.e. below 36021 (Nifty
10607), which was the closing level of previous Friday.

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”.

As we had explained, no impulse can be retraced by more than 61.8%.


The charts now show the Jan-Mar fall as “a” and recovery thereafter as “b”.
Both these legs can now become part of a larger Triangle from Jan’20,
which requires each of its legs to be a “corrective” label-3 pattern.

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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.

We, then, showed various types of Triangles (Running, Contracting,


Neutral, Expanding or Extracting) that developed in the history of Dow
Jones and Sensex. We also said how much the violent fall retraces
“previous move” by can determine the type of Triangle that could
unfold. The gray area is what you consider as “previous move”.

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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.

If we consider previous move as starting from Mar’16, then Jan-Mar


fall retraced it by 84% on arithmetic scale and about 79% on log-scale.

We are, therefore, open to all types of Triangles mentioned above, but


would like to have one, the lowest point of which can “overlap” with
‘2008 high of 21206 (Nifty 6357).

Structurally, we suspected upward “b” leg from ‘Mar lows may be


unfolding as a Diamond Shaped Diametric (DSD), and its g-leg could
achieve price-similarity with the a-leg. At last week’s high, g-leg was 82%
of a-leg, i.e. close to being price-similar.

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DSD is a 7-legged pattern, marked internally as a-b-c-d-e, with a “bulge” in


its middle part due to larger d-leg. The g-leg is its last leg. DSD’s “bulging
in the middle” shape was marked on the initial Daily chart.

We also suspected that g-leg of this DSD could itself be forming as a


smaller DSD from 12th Jun, and its “bulging in the middle” shape was
shown on the 30-minute chart.

If our assumption of smaller as well as larger DSD is correct, then Sensex is


forming last legs for both. As per NEoWave confirmation rules, a
structure is assumed over when its last leg gets fully retraced in faster
time. This is yet to happen.

As can be seen on Sensex’ Daily close-only chart above, it is still forming


“higher top higher bottom” (HTHB), which defines an Up-Trend as per
the basic Dow Theory, and which can continue until the chart actually starts
converting into “lower top lower bottom” (LTLB).

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.

We showed 4 different types of Triangles from the history of Dow and


Sensex, as follows.

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Running Triangle on Dow :

Contracting Triangle on Dow :

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Neutral Triangle on Sensex :

Expanding Triangle (upward) on Sensex :

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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.

While developmental logic behind “Contracting Triangle” (CT) is similar


to “1st Extension Impulse”, in “Expanding Triangle” (ET) it is similar to
“5th Extension Impulse”. In between these two, developmental logic behind
“Neutral Triangle” (NT) is similar to “3rd Extension Impulse”.

Based on the “Contrarian Theory”, we opened upward “b” from 24th


Mar’20, the day when the -ve news in the form of nation-wide Lockdown.

By the same logic, we suspected upward b/2 would mature on +ve news
like Covid Vaccine, Stimulus Package or gradual opening of economy.

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The choice between “Recession” and “Depression” is also defined by such


time period. A “Recession” would generally limit itself 13 or 21 in terms
number of months. However, “Depression” would last longer than that.

In Dow Jones history, there were many “Recessions”, each occurring at


an average interval of about 5 years, but only one “Depression”, the
“Great Depression” of ‘1930s. As per the Wave structure we have presented
so far, we are only expecting a “Recession”.

As we showed on the chart below, all corrections in the history of Sensex


were of 3 categories, calculated on the basis of %-loss from the top :
Category-1 (13% +/- 2% loss), Category-2 (25-30% loss) and Category-3
(50-60% loss).

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Time-wise, in terms of number of months, all major corrections on Sensex


historically took for about 13 or 21 months to complete, both of which are
Fibonacci Numbers, as we showed on the Monthly chart of Sensex below :

As marked on the chart, the major corrections of : (1) ‘1986-88 took 21


months (2) ‘1992-93 took 13 months (3) ‘1997-98 took 13 months (4)
‘2000-01 took 21 months (5) 2008-09 took 13 months (6) ‘2010-11 took 13
months (7) ‘2015-16 took 21 months.

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.

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The Terminal from ‘2003 onwards is a “1st Extension type Terminal”,


wherein 1st was the largest wave, comprising 625% gain from 2904
(May’03) to 21207 (Jan’08). The 3rd wave was smaller than the 1st,
comprised 420% gain from 8047 (Mar’09) to 41400 (Feb’20).

Since 1st Extension Terminal should maintain “Diagonal Triangle


shape”, 4th should remain “smaller” than the 2nd on “Log-Scale” chart.
Since 2nd (2008-09 fall) comprised of 63.5% loss, current 4th wave fall
should be smaller, i.e. end above 15400 on Sensex, price-wise.

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.

As per NEoWave, a Terminal should be fully retraced in 25-50% time, i.e.


in the next 10-11 years after ‘2024 (next 8-year cycle zone?), which would
mean break below May’2003 low of 2904 (Nifty 920).

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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.

Over 3 years ago, we showed performance of Sensex post elections on the


chart given above. As shown on the chart, Sensex’ performance always
remained subdued after a non-Congress Govt gets elected.

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As can be seen on the chart, Sensex has now fallen back closer to Modi-1
levels.

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Technical readings carried forward from previous weeks

We considered following alternate scenario when Sensex moved above


2008-10 highs. It shows corrective phase from ‘2008 completing as a 5-
legged Ascending Triangle. This scenario opened much higher targets,
30000+ for Sensex, and the same has been achieved.

The 30000+ target was nothing but 100% (+/- 25%) breakout implication
of the largest leg of the Triangle.

According to NEoWave, corrective phase should consume more time than


the move it is correcting. After the 56-month rally from May‘2003 to
Jan’2008, Sensex has corrected for 67 month from Jan’2008 to Aug-13, i.e.
a larger period as required under NEoWave.

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We cannot rule out that a sufficient time-correction is required after any


multi-fold rally. As shown below, such time correction can last for as much
as 161.8% to 261.8% time ratio to the multi-fold rally.

As for the last multi-fold rally during ‘1988 to ‘1992, its correction had
lasted for 262.8% time ratio, from ‘1992 to ‘2003.

On the super-cycle degree, we are considering a “Terminal” development


since ‘2003 onwards. The Terminal was suspected because its 1st wave
from 2003-2008 was a label-3 “corrective” pattern. (As against a normal
label-5 Impulse pattern).

The 2003-2008 rally was internally marked as a corrective pattern called a


Running Diametric.

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We could be forced to consider up-move since ‘2009 as the 3rd of the


Terminal Impulse, as per the Blue labels shown above.

The basic NEoWave requirement is that a corrective phase should consume


more time than the move it is correcting. The ‘1992-2003 corrective phase,
remember, continued for a time-ratio of 261.8% to the preceding 4-year
rally from ‘1988 to ‘1992.

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Comparable Multi-year long Diametric formation on Dow

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.

Again, during ‘2003 to ‘2008 it multiplied 7 times. Drawing similarity, it


could see a minimum 7-year consolidation starting ‘2008. Further, the
consolidation, may shape up like a 7-legged Diametric, similar to the
consolidation seen from ‘1992 to ‘2003.

The Diametric formation from ‘2008 is also suspected because each of its
internal legs, except B, have consumed about 13 months so far.

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Long-term corrective phase on Dow’s chart also appears to be a probable


7-legged Diametric. Instead of “Bow-Tie Diametric” on Sensex, Dow’s
Diametric is shaping up as “Diamond-Shaped Diametric”.

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.

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BSE Dollex-30 Index

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.

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BSE Small-Cap Index

The Small-cap Index on its Weekly chart is seen breaking below its
‘2008 highs, and achieving Category-3 correction.

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BSE-500 Index

After BSE-500 Index reached new high levels in Jan’18, it hesitated


and fell back closer to its Jan’08 highs.

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OBV

On Balance Volume (OBV) adds up or accumulates each day’s volumes


as positive or negative, depending on day’s close.

The Red line stands broken. Now watch the Black line.

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Daily MACD/KST

While Moving Average Convergence Divergence (MACD) is based on


difference in two different Moving Averages, the Know Sure Thing (or KST)
is based on various smoothened ROC (Rate of Change) values. Both of these
are known to be “smoothened” technical indicators.

The Red line stands broken. We’ll now watch the Black Line.

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Weekly MACD / KST

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.

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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.

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Sensex PE Ratio

Given below is the chart of Sensex PE Ratio, covering a longer history,


since ‘1991. This chart showed the highest levels of 55-56 during ‘1992
peak. However, on 10th Jun 95, Economic Times reported that BSE’s PE
Ratio calculations were based on out-dated data, which led to a wrong PE
multiple till then. BSE, then, revised the PE overnight on 14th Jun’95, from
29.44 to 18.51. This appeared horrifying to those who realized that official
data can be totally misleading. After adjusting the data (a technical
adjustment like bonus shares), the chart shows the highest levels of about
34.

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.

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The 8-Year Cycle


The Sensex is also assumed to be under the influence of a large 8-year
cycle ever since its birth. As shown on the chart below, '1984 was the
beginning of 8-year long bull-run till '1992. In our Super-Cycle Degree
count, shown on ASA Long-Term chart under a separate paragraph, we’ve
considered ‘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, 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.

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We had, accordingly, targeted sub-10k levels for Sensex price-wise during


‘2008-09, and a minimum of 13 months into bear phase, time-wise. The
price-time targets were achieved as Sensex dropped 63% from 21206 to
7697.

As can be checked on the Yearly chart of Sensex above, its current


trajectory since ‘2012 is not so clean and perfect, as previous two
trajectories shown.

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Domestic Institutional Investments

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)

This non-traded chart also throws interesting wave-structure, as marked.


Based on this, it was argued that “5th of the 5th should not cross 156018.”
Chart did react lower without crossing 156018, and indeed saw its biggest
sell-off due to heavy redemptions from domestic investors.

Since May’2014, heavy inflows from domestic investors, either through


SIP or otherwise, have seen a big rally on the chart.

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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.

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Dollar Index

We had noted the structure of Dollar Index chart showed potential


bottom getting formed on the chart.

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.

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DOW

Dow’s probable wave-structure is shown on the chart below :

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 :

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ASA World Index


On the Monthly chart of ASA World Index (which is based on all active
stock market indices around the World), Technical Channels are as shown
below :

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Comparison between Developed and Emerging markets


Following chart compares stock indices of Developed and Emerging
economies. Since ‘2009,

Emerging markets have outperformed the Developed economies.

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MCX Crude

For Crude, the probable wave-structure is presented below :

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.

Earlier we showed last fall on Crude as an Impulse. However, since crude


has now crossed 61.8% retracement level to the fall, the structure has been
modified to a Double Combination fall, which has pattern implication of
80% retracement as per NEoWave.

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.

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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.

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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.

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Appendix : Super-Cycle Degree Wave-scenario for Sensex

For Super-Cycle-Degree wave-scenario, consider following ASA Long-


Term Index. This Index has been created by combining a very old Index
compiled by a British advisor (from '1938 to '1945), with RBI Index ('1945
to '1969), F.E Index ('1969 to '1980) and Sensex (thereafter till date).

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.

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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.

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As mentioned above, the lower-degree 1st from May’2003 to Jan’2008


appears to be a Bow-Tie Diametric, marked as a-b-c-d-e-f-g. It is called
"Diametric" because it combines two Triangular patterns, one initially
“Contracting” up to the "d" leg, followed by an “Expanding” one. 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% gains. Similarly, "g" was equal to "a", both showing about 115%
gain.

The Diametric development from ‘2003 to ‘2008 is considered to be the 1st


wave of the Impuse. Due to the corrective structure in the 1st leg, the higher-
degree 5th could be developing as a Terminal. Since ‘2008, we are into its
2nd wave, which could continue to develop over a period of 7-8 years
beginning ‘2008.

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As per NEoWave, break of 2-4 line confirms a Terminal development, and If


the 5th proves to be a Terminal, the Super-Cycle-degree label of 3rd will have
to change to 5th, because only a 5th of a 3rd cannot be a Terminal. Only a 5th
of the 5th can be a Terminal. The Super-Cycle-Degree marking for 1st and 2nd
as shown on ASA long-term chart, would then change to 3rd and 4th
respectively, as shown in Blue.

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.

Copyright : Vivek Patil Email : vivek@vivekpatil.com Phone : 8976010081

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