Commentary on Indian Indices: NSE NIFTY
Today, i keep looking at charts, and i am some how led to believe are we there yet. After a splendid rally, where everyone is gung-ho about now the famed concept of stock picking after stocks have rallied for more than 100% seems a bit odd to me. At least, the way I have seen markets (charts) all straight line speed rises get punished.
There is a fort near where I stay called Sinhagad. A friend of mine asked me how much time it takes to reacht the top, to which i replied a couple of hours. He then asked me how much time will it take to come down, if I push you down.. :) Thats the moral of the story. When you reach the top, the momentum of your movement slows down. Its like hush.. man i made it to top; only to know, comin down is more quick then goin up. So now, moral of the story been the down move that shall follow shall be quick fast and the moves shall be so good, that bulls will have their heads spinning, by the time they understand where the hell they are.
Talking about socionomics or mass physcology, currently all Business Channels are endorsing an out of world 2010 and with every tom, dick harry with saying markets could rise, or fall say 10% from here or take a sideways action. But then aren't these the only moves possible on any stock markets. It seems too odd, that people paid fat cheques say, predicting market is difficult. Anyhow, coming back to where I started, mass physcology. Seeing the inherent bullishness everywhere and rumors floating like "BUY Bag Films now, stock will hit upper freezes, since Big Radio will acquire stake" are comin back.
Nifty is up 104% from Mar 2009 low of 2555 to 5200 in total 42 weeks. Of the 104%, 82% increase was made in first 13 weeks upto week-ended 12 Jun 2009; while the rest of 20% upside was achieved in remaining 29 weeks (wow!!!! 29 weeks for 20% increase). That is amazing.
Yes, there were indices that went up as well, like CNX IT, Bank Nifty, Pharma Stocks, Metal, Auto Index and Junior index. While laggards were Oil & Gas, Real Estate, Power, Infra. That brings me to think, why Infra would not perform that great in a nation starved for Infra and Power. Now now, donot talk about last one or two weeks of Increase in R-Power and NTPC. Lets just say, I am tryin to put in pieces for whether we are in Bull market or not.
So, here it goes, Assuming we are in Bull Market. So what did we have. Wave 1?? But as far as my reading of Elliott Wave goes, Bull Markets donot start with such side-ways action meaning where 69% (29 weeks of 42 weeks of upside action) of time is spent in sideways action. Anyhow, sayin we are in wave 1, lets say we corret from here, we would have a rather 61.8% retracement. Assuming 5200 is the top, then that would mean, we reaching in the zone of 3500. So maybe 5200 is top or maybe say we tread to 5300 to 5350 (upper end of rising trendline from week 12 Jun 2009, connecting Oct 2009 top and strectching ahead). So well there is chance of a blow-off top as well, say at 5350 etc. So jus putting in numbers:
1. Top at 5200: Short with SL of 5230
2. Well, we go up from here, then we could reach 5300 to 5350 levels. But if we stick to trade with trend, then i would say famous line "its not over until its over"; in that case trade with trailing stop loss. No prediction of top. When it happens then it happens.
Now, takin to account a Bearish scenario:
We I think we are in larger Wave B of larger downside. In that case boy oh boy, we are in for some downside here. I am fairly with Robert Prechter, who says US indices are in P2 wave structure and possibly shall be looking at wave P3 here onwards. Well, taking focus back to Wave B. EWP Page 81 mentions: Wave B of intermediate degree and lower show declining volume while B wave of Primary degree and higher show volumes higher than that which accompanied in the preceding Bull Market, indicating huge public participation. Well volumes are declining in markets, however, they are generally at levels in Wave 5 period from July 2007 to Jan 2008. Plus, we are seeing currently the markets are rising with continuously negative divergence of oscillators RSI, MACD on daily and weekly basis. In that case lets see wave B of very larger degree is in place, then we are looking at extremely downside targets. A longer term Sensex chart gives a better picture.
Right now bears are running helter skelter and no one is sayin of target of 3500 on nifty and lower. Trust me if this daignosis works out and we enter Wave C, then everyone had it. Anyways just to explain Wave C can do here are some words from EWP Book page 81: Declining C Waves are "usually devasting" in their destruction. They are third waves and have most of the properties of 3rd waves. It is during this period that there is virtually no place to hide except cash. Well, that been the case, tighten your seat belts. :)
Third case: Sideways action, Well, that seems a bit implausible considering the fact we are in sideways actions for like 29 weeks now and more so from Oct 2009. In fact from Nov onwards, where market went up, volumes are sliding, indicating strenght loosing in index (Nifty), so we have certain stocks goin off the roof while the rest languishing. That is generally not the case in BUll markets i presume. So, frankly I am not much of an advocate of the whole side ways theory.
Concluding, I feel that the we are at the top of mountain and ready to be pushed down or maybe jus need to climb a tree at the top. Either of the case, we are gettin ready for a plunge. I have not put in any charts now, cause its more of commentary. Still bottom line is we are at top and looking for a serious plunge. Bears come out, time to kill :)
Disclosure: No Positions
Commentary on Indian Indices: NSE NIFTY