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Monthly Archives: August 2012 S & P 500: The Turning Point ? August 31, 2012 Short Term Analysis Leave a Comment

Analysis of several charts in last few years has helped me identify one very important characteristic of almost every pattern in wave theory that I use as a THUMB RULE: ALMOST EVERY PATTERN BEGINS WITH SIMPLICITY AND ENDS WITH COMPLEXITY This is what I am observing right now in the pattern of S&P 500 which began at the bottom of 1075 in October 2011. The pattern looks like a contracting triangle with ‘reverse alternation’. This means that waves A, C, E reduce but wave D is bigger than wave B. Unlike a typical contracting triangle, here the trend lines are either parallel or expanding.

I am interpreting the ongoing wave E to be a combination of two diametric patterns connected by x-wave. One can easily observe the degree of complexity in wave E compared to waves A and C. For me this looks like an ideal situation for termination of a long term pattern that began last year.

If so, things are not looking good for the US markets (and in turn the world markets) irrespective of what Mr. Bernanke does.

NIFTY: Triangle or Terminal Impulse August 29, 2012 Short Term Analysis Leave a Comment

As discussed in my last post on NIFTY, the market has topped on 23rd August at 5448 and declined by about 150 points till now. I have not used the word ‘crashed’ by 150 points since it has taken almost four days to do so. Still the point to note is that the crack has begun just before the apex point and the triangle count holds true only if NIFTY goes below 5032 in the next few days preferably before 7th September 2012.

An argument contrary to the validity of a contracting triangle is that wave e crossed the top of wave c. But as per NEowave theory the contraction is still valid since wave a, c, e go on reducing in size and wave d is smaller than wave b. Also wave b has taken 71 days compared to 30 days consumed by wave a. Such a large difference is generally not observed in triangles. But their are certain fibonacci relations in these waves. We find that wave e = 0.618 times wave c and wave c = 0.618 times of wave a. Similarly in case of the counter-trend moves wave d = 0.382 times wave b. There is a substantial alternation between waves b and d (i.e. differences in their price, time and complexity) which is required under NEowave theory. I am still considering both the possibilities: i) non-limiting triangle, which only the market action should confirm in the next few days. If not, then it may be ii) a terminal impulse whose wave 4 is in progress and wave 5 is yet to follow.

If so, it will only postpone the IMPENDING CRASH.

Basic Concepts of Elliott Wave Theory August 27, 2012 Wave Theory Simplified Leave a Comment

A trade is executed in a stock market (in fact any market) when the buyer and the seller agree upon a price. Stocks of several companies are traded at different prices in a stock market during its trading hours. Stock exchanges all over the world have defined some indices that include certain number of stocks. e.g. Bombay stock exchange’s SENSEX is composed of 30 companies whereas National stock exchange’s NIFTY includes 50 companies. These indices are calculated on the basis of weighted market capitalization. Index value of 100 has been considered as the base value of the SENSEX corresponding to the market capitalization of the thirty companies in the year 1978-79, treated as the base year. Today’s SENSEX in the range of 17000-18000 means the market cap has increased 170-180 times of that of the base year. Now if the values of these indices are plotted against time on a daily basis then different price patterns emerge. Since the index includes highly traded fundamentally sound stocks we assume that it indicates the overall mood of the market participants and their perception of the economy. Thus these charts of indices are the graphical representation of mass psychology. Elliott wave analysis is a study of these price patterns. NEowave theory is actually Neely’sExtensions Of wave theory that includes Glenn Neely’s several new ideas and discoveries. BASIC CONCEPTS Before I discuss the basic concepts of wave theory, I would like to define three fundamental characteristics. Each pattern defined under wave theory has one of these characteristics. i) Directional Pattern: This type of pattern is fast moving that covers a lot of price in a short time. I also call this as ‘Price Consuming’ pattern. ii) Non-Directional Pattern: This pattern is slow moving that takes a lot of time but covers a small price range. I also call this as a ‘Time Consuming’ pattern. iii) Semi-Directional Pattern: This pattern consumes both price and time. Please note that the above-mentioned small price range, short time etc. are relative terms i.e. relative to the surrounding market action in the chosen time frame. TYPES OF WAVES All price movements on a chart can be broadly classified into two categories. 1) Impulsions (Impulsive Waves): An impulsive pattern is made up of five waves (also called five legs) numbered 1-2-3-4-5. Waves 1,3,5 are in the direction of the main trend and waves 2,4 are opposite to the direction of the main trend. There are two types of impulses. i) Trending Impulse: This is a directional pattern in which waves 2 and 4 do not overlap. This impulse can begin a pattern or end a pattern. ii) Terminal Impulse*: This is a semi-directional pattern in which waves 2 and 4 overlap. This impulse cannot begin a pattern. It can only end or terminate a pattern and hence called a terminal impulse. 2) Corrections (Corrective waves) : These waves are always opposite to the impulsive waves. The waves that form corrective patterns are usually named by letters A, B, C, D, E etc. Corrective patterns have the following types. i) Three Legged (A-B-C) Pattern a) Flat

b) Zigzag

ii) Five Legged (A-B-C-D-E) Pattern a) Contracting Triangle

b) Expanding Triangle

c) Neutral Triangle*

iii) Seven Legged (A-B-C-D-E-F-G) Pattern a) Diamond Shaped Diametric*

b) Bow-Tie Shaped Diametric*

iv) Nine Legged (A-B-C-D-E-F-G-H-I) Pattern a) Symmetrical Pattern* Out of all these corrective patterns only zigzag is a directional pattern. All the other forms are non-directional. ‘*’ marked patterns are great discoveries of my distant Guru Mr. Glenn Neely. I shall discuss each of the above mentioned patterns in detail (with their interesting variations and charts) in my future posts on this blog.

NIFTY August 22, 2012 Short Term Analysis Leave a Comment

The rally of NIFTY for last 17 days from the bottom of 5032 seems to be requiring more and more effort to cross the previous day high and to sustain above it. Probably there is still some steam left in it. Typically in a non-limiting triangle pattern, I mentioned yesterday, the price trend tends to move closer and closer to the apex point (shown in the upper chart) before terminating. Also the volumes are usually high in wave a of the pattern and go on diminishing during the successive legs, which also is clearly visible in the lower chart.

For this triangle pattern to be valid, this uptrend should terminate anytime in the next 10-12 days i.e. before reaching the apex point.The triangle will be said to be over if a swift move (called the thrust) breaks the ‘b-d’ trend line and takes NIFTY below 5032. If it happens so, this downward move will become the first part of the succeeding pattern. If not, it may take some more time to complete another possible pattern called terminal impulse mentioned in my article posted yesterday. Till then, let us wait and watch.

Current Status of Indian Economy: A Wave Theory Perspective August 21, 2012 Short Term Analysis Leave a Comment

Applying wave theory to stock market index charts is not an easy task. The interpretation of a price pattern can vary from analyst to analyst. Glenn Neely’s NEowave theory tries to eliminate this subjective nature of analysis. Point Zero (The Starting Point) The most important question that arises before one analyses a pattern using wave theory is “which is the starting point of the pattern?” Unless an analyst uses the right point to start the analysis, the interpretation of the pattern that follows can completely go wrong. Neowave suggests that one should look for the biggest and the fastest move on the chart in recent times. This should be decided by comparing with the earlier price movements in a particular time frame. One should use a big move on daily chart to analyse a pattern only on daily chart only because such a movement on a daily chart may not be an important starting point on a weekly or a monthly time frame. If we consider the NIFTY cash daily chart for last two years, then we find that the fastest and the biggest move occurred in January 2012.

Let us mark the low of 4695 on the Nifty (Jan 09,2012) as “point 0″. The upmove that followed up to the high of 5630 (Feb 22, 2012)was one single wave called wave `a`. The downward wave that followed from that high to the low of 4770 (Jun 04, 12) forms wave `b`. The recent upmove from this bottom can present itself in two possible forms. It could result in a single `wave c` consisting of five parts (called Terminal Impulse), shown below.

Another possibility is a non-limiting contracting triangle beginning from January, as shown below.

I shall discuss the above mentioned terminal impulse pattern, non-limiting triangle and many more patterns in my posts at a later stage. For the time being let us observe the market action in the next two weeks.

Monthly Archives: September 2012 S & P 500: Impending Top ? September 22, 2012 Global Indices, Long Term Analysis 1 Comment

In my last article on S&P 500 posted on 31st August 2012, I had discussed a combination of two diametric formations on the daily chart. That time the last leg i.e. wave ‘g’ of the second diametric was about to commence. The up move from September 4 forms this wave ‘g’. The US Federal Reserve Chairman Mr. Bernanke announced QE3 on September 13 that pushed many stock market indices all over the world to their new 2012 highs. S&P 500 managed to cross its 2008 high. But now, this euphoria seems to be fizzling out with S&P 500 not able to cross that high of about 1475 in the last five trading sessions. Whether it is consolidating or distributing remains to be seen in the next few days.

The longer term picture is shown on the weekly chart. This also seems to be a diametric in its last leg, wave ‘G’. Once it is over, a new bear market should begin sooner or later.

A fall bigger than wave ‘F’, which is about 150 points on the S&P, will confirm the commencement of a MULTI-YEAR BEAR MARKET.

NIFTY: Terminal Impulse (Modified) September 21, 2012 Short Term Analysis,Uncategorized Leave a Comment

In my last write-up about terminal impulse pattern, I had mentioned ”The validity of this pattern will be threatened only if NIFTY crosses 5645 (cash)”. And NIFTY did cross this mark. Now it is always better to modify the pattern labeling as minimal as possible unless the bigger picture is not justified.

The bigger picture seems to be a FLAT pattern that has 3 legs a, b and c, discussed in my last post also. Maintaining the same overall configuration, I have modified only the labeling of wave c. Within wave c, wave 2 is now subdivided in three parts and assumed to end at a higher point (earlier wave 4 position). This imparts strength to the move that follows i.e. wave 3 in this case. The violent wave 3 in progress justifies this assumption.

Wave c that is in progress right now can take a few more weeks to complete and can easily attain higher levels as implied by the momentum it has right now. The ideal time wave c may take is the total time taken by waves a and b together. That projects the ideal turning point in Time to be around second week of November 2012.

NIFTY: Terminal Impulse September 14, 2012 Short Term Analysis Leave a Comment

I discussed in my last post how terminal impulse pattern took over the non-limiting triangle pattern. Wave 5 of this impulse seems to be on. The validity of this pattern will be threatened only if NIFTY crosses 5645 (cash). The reason for this lies in the fundamental rules of wave theory. The rule says that in any impulse pattern wave 3 cannot be the shortest among waves 1, 3 and 5. If we add the length of wave 3 to the end of wave 4, we get the figure of 5645. That means wave 5 has to terminate before reaching 5645.

In case NIFTY crosses this point, then the pattern developing is NOT terminal impulse but something else. It is always better to follow what the market does rather than trying to predict, all the time, what it is going to do.

NIFTY: Terminal Impulse overrides Triangle September 7, 2012 Short Term Analysis 1 Comment

In my last write-up on NIFTY, I wrote “Still the point to note is that the crack has begun just before the apex point and the triangle count holds true only if NIFTY goes below 5032 in the next few dayspreferably before 7th September 2012″. Today, on 7th September, we find that the market hasn’t crashed below 5032 and on the contrary has again started moving up. Secondly if triangle had terminated at the top of 5448, then the post pattern move (called thrust of the triangle) should have violently broken the b-d trend line without any hesitation and moved along the red line (as shown).

In the absence of the above mentioned characteristics the five wave terminal pattern now overrides the triangle and will take a few days to complete.

Now we need to wait, may be, for the next 2-3 weeks for this pattern to get over.

Monthly Archives: October 2012 S&P 500: Reversal of Trend? October 30, 2012 Global Indices Leave a Comment

Last post I wrote ” The daily pattern looks more like a distribution rather than a consolidation”. That has turned out to be so till now with S&P coming very close to its crucial support level of 1396.56. This was the value from where the last directional action had begun, marked as wave e on the chart

The hurricane Sandy forced the US markets to remain closed on 29th and 30th October. If markets reopen on 31st October, the crucial level to be watched right now is 1396 on the S&P. If the index breaks that level and accelerates downwards then we can be almost sure that the bull run is over. If not, then there is still some steam left. Do you agree that the value of 1396 on the downside is crucial psychologically ?

S&P 500: Consolidation or Distribution? October 21, 2012 Global Indices Leave a Comment

Last week I wrote ” In spite of closing below 1430, if S&P does not accelerate downwards then the interpretation would change”. S&P 500 did rally thereafter and made another futile attempt to make a new 52 week high. It managed to make only a lower top of 1462.2. We find, as shown in the chart below, that from the successive tops marked T1, T2 and T3, the index is reacting more and more swiftly. This behaviour is typical of a distribution pattern rather than a consolidation pattern. In other words, the pattern developing is more like a reversal rather than a continuation pattern.

The structure from June 2012 bottom is becoming more and more complex. I have again modified slightly the pattern presented last time. We also observe that the bear candle on Friday, 19th October is the biggest in last 4 months, thereby questioning the upside potential of S&P.

If in the coming weeks S&P again rallies with increasing complexity, then instead of continuously altering the daily structure labels we shall start focusing on the weekly structure that I have presented earlier.

This is a diamond-shaped diametric formation on the weekly chart. A fall below 1266 on the S&P, preferably within the next 3 months would confirm the end of Bull Market that began in March 2009.

S&P 500: End of Bull Market ? October 14, 2012 Global Indices Leave a Comment

Recent drop of S&P 500 this week has threatened last three and a half years bull market. I had discussed the ongoing pattern of S&P to be a double diametric formation that I am presenting here with a small modification.

It is the first time from the low of 1266.74 in June 12, that a rally has been completely retraced in shorter time, raising doubts about any further steam left in the up trend. Further, the second diametric seems to be over at a lower top and the latest close on Friday is below the previous low of 1430 (end of ‘f’ wave on chart).

On weekly chart of the S&P, this week’s candle is the biggest bear candle in this entire up trend from June 2012 bottom.

Also S&P has not been able to surpass the high of 1474.51 made on 14th September 2012 after the FED announced QE3. This has happened in spite of all the good news in terms of unemployment and confidence data.

If S&P continues to slide further in the next few weeks and crashes below the June low of 1266.74 then that’s a bad news for the American and in turn the world markets. This may signal the beginning of a multi-year bear market. In spite of closing below the recent low of 1430, if the index does not accelerate downwards in the coming week then the above interpretation will change and we then need to wait for the market to present a different identifiable pattern.

NIFTY: Wave 3 probably over October 13, 2012 Short Term Analysis 3 Comments

In my last post, I had discussed a pattern called FLAT beginning 9th January 2012 (point 0). This pattern has three legs, a, b, c. We observe that the third leg, wave c, is in progress. This wave, I have assumed to be sub-dividing in 5 parts (1, 2, 3, 4, 5). Wave 3 seems to be over at the top of 5815 on 5th October 2012, since the fall thereafter is bigger than any of the previous falls within wave 3.

Now, on a logarithmic scale, wave 3 is shorter than wave 1 in price. That means wave 5 should be even smaller. Of course there is still time for wave 5 to begin. If we take a closer look at wave 2, we find that it is an irregular failure FLAT pattern. The word irregular means wave (b) is longer than wave (a) and failure means wave (c) fails to cross the end of wave (a)

The post pattern implication suggests that the wave that follows (wave 3 in this case) should be longer than the preceding wave (wave 1). Since that has

not occurred there is a possibility that wave c may be terminal impulse pattern in which wave 2 and wave 4 overlap. For that to happen wave 4 must drop to 5448 or lower on the NIFTY but should not cross 5217. If wave 4 goes below 5217 then our assumption of a FLAT pattern starting January 2012 is wrong. We shall follow the market for the next few weeks to find out where this wave 4 ends.

Monthly Archives: November 2012 S&P 500: Bear Market Beginning with Expanding Triangle? November 23, 2012 Uncategorized Leave a Comment

I had explained two possible scenarios, in terms of the wave structure labeling, for the recent fall in S&P 500. I had mentioned ” If we see a substantial bounce back taking the index up to 1403-1434 range then expanding triangle is the preferred count”. S&P has rallied thereafter to close today at 1408.35. I am assuming this rally to be wave ‘d’ of an expanding triangle (a-b-c-d-e). The sharp reversal that occurred at the bottom (near termination of wave ‘c’) is a typical characteristic of an expanding triangle.

For this count to remain on track wave ‘d’ must end in the range 1403-1434. If it crosses 1434 then this count and even the weekly structure has to be modified with some relabeling. If this count turns out to be right then within a few days, once wave ‘d’ gets over, an extremely damaging downward wave ‘e’ should get underway. We need to wait for some more days to find which way the market moves.

S&P 500: Bear Market Begins Finally !! November 17, 2012 Global Indices Leave a Comment

It is almost certain now that the bull market that began in March 2009 is finally over. The ultimate confirmation would come when the the index falls below its June low of 1266.74. As I discussed in my last write-up, the mood of the market participants has clearly become bearish. It will continue to be so in spite of any good news or any desperate efforts by the governments to prevent the fall. I have always mentioned in my earlier posts that the move which qualifies for the beginning of a new trend should be simple i.e. it shouldn’t be sub-divided. The recent fall in the S&P has that characteristic. Secondly this is the biggest fall from the bottom of June 2012. For the downward pattern, there are two possible interpretations in the short term. Either the new pattern has begun at top T3, because the wave following that has retraced the prior up move in shorter time. The pattern then looks like an a-b-c structure up till now. The structure may be a part of a running expanding triangle a-b-c-d-e .

Another possibility is that the pattern may have begun at the top T4 and this could be just the first wave a of the pattern.

.If we see a substantial bounce back taking the index up to 1403-1434 range, then expanding triangle(first chart) is the preferred count. In any case the markets are likely to undergo severe damages in the near future.

S&P 500: The onset of a BEAR market ? November 10, 2012 Global Indices Leave a Comment