Pithaly

Guys, here's my take on the markets. The article below does resonate much of my thinking, and also gives reasonable levels. A word first, on this bullish-bearish thingy though.

Yes, we have broken the DAILY chart 200 DMA, not the WEEKLY chart, (in fact, we have just broken the 50 DMA on the Weekly charts, but this could recover very fast after a steep decline, like it happened in June '06 and never again till now), and may continue to ride below that zone say for a month or so.

The article states that this is an Elliot wave 4 correction. Now, Elliot wave counts are very complex and many times the count has been proven wrong, but seeing the structure of the sensex, it seems more like a rounded top rather than a vertical blow-out aswould be expected in an Elliot wave 5. So at the moment, I would accept this as a wave 4 correction. In which case, the good news for LONG term holders is that on completion of wave 4 the final bullish wave 5 will start. (That may take some time though!)

Next, on the DAILY and the WEEKLY charts the market is terribly oversold. I have never seen the WEEKLY Stochastics in such oversold regions (approaching 0) in the last four years. Earlier, a WEEKLY buy signal, (and there have been very few such opportunities ie., once a year, giving a lot of credo (is this a word?) to the fact that a buying opportunity really takes place once or twice a year. (As shown on the chart, May '05, July '06, April '07 and now, when the signal appears, the buying opportunity for '08.) which implies a wait of another 6 to 8 weeks on the WEEKLY Sensex or Nifty, confirmed with early buy signals in the daily charts sometime before that. Sentiment at that stage would still be very BEARISH and would turn BULLISH only after the cream 25% to 30% of the rise has taken place.

From this virtual ground zero levels, there has to be a technical bounce-back! Exactly how high would it go, is a matter of conjecture, but could be as high as 18,000. Again, reaching that level may take some time (and 'm speaking in terms of months).

Before it gets there, there is some bad technical news. The next support after 4900 (which has been broken), is 4300 on the Nifty. That means one has to be ready to sit through another fall of 600 points on the Nifty and hope that holds. That's the point when we will see the real blood bath. This is merely bruising, since long term investors are still in considerable profit.

Having said that, the potential to correctly guage the entry point if you exit now has a very low probability, since the level of FEAR will be so great at that point, that only extremely fool-hardy and contrarian persons (like me!) will even think of entering.

So, the long term strategy is to HANG IN THERE and this may mean for over a year. After all, as a long term player, your interest is to catch the greatest rise, which will take place in the 5th minor wave of the 5th major, (provided it is not truncated by some DISCONTINUITY which is the prime cause of not being able to predict anything in the markets), and the indices at that time would be of the "shock-and-awe" type.

As the article mentions, and rightly so, only a break of Nifty 4000 (gulp!) would declare this as a LONG TERM BEAR MARKET.

As I had mentioned earlier, (and this seems to be coming true now), is that every developing nation has to go through a depression (read a bear market), before a secular BULL can start.

One would need to sit out the hell that is going to happen to the world markets in September '08.

Do read the blog post below this, where Roubini has listed out the 12 stages of economic hell. (Quite akin to the 12 days of Christmas!)

Next post: Another very interesting person to follow. Ms. Meredith Whitney.


Quote, courtesy DNAINDIA: Both the Sensex and Nifty appear to be tracing out an Elliot Wave-4 correction CHENNAI: Technically, indices have fallen enough to cleanse the excesses created during the earlier rally. The key ones such as the Sensex and the Nifty have corrected from deep overbought levels in the monthly time frame and have nearly reached the oversold zone. Benchmark indices have also reached extreme oversold region in the daily and weekly time frames. Hence, technically, the correction that was required has been accomplished with the fall on Monday. Markets have hit crucial support levels in both the indices and have staged an intra-day bounce off those levels. It would be crucial for the indices to hold above the intra-day lows recorded on Monday for a sustainable recovery to materialise in the short-term. A breach of these lows could lead to the test of the next major support levels in these indices. In the Sensex for instance, a drop below Monday’s low of 16951 could lead to the test of 16390-16500 range. In the Nifty, the support levels are at 4900-4950, followed by 4240-4300. Though these support levels may appear scary from current levels, the long-term uptrend will not be affected even if these levels were to be tested. Both the Sensex and Nifty appear to be tracing out a Wave-4 correction (in Elliott Wave parlance) to the earlier rally and the next segment of uptrend would take these indices to new heights. As there is a case for a lot of churning and base-building to happen before the next leg of uptrend begins, we may not see new highs in the index in a hurry. The long-term uptrend would be under threat if the Sensex closes below 15000 and the Nifty below 4000. From a short-term perspective, the scenario is ripe for a sharp technical rally and those who are holding short positions may tighten stop loss or take partial profits. Traders may also wait for short-term “buy” signals and take long positions for a quick 12-15 per cent bounce in the index. The key here would be risk control and entry at the opportune levels. http://www.dnaindia.com/report.asp?newsid=1146698

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