Thursday, June 26, 2008

Market Mayhem - Is it over?

In my 21 June Market Mayhem Post I wrote -

. . . . .'The pivot low that can be expected from here is 4155. The market may tank further if we break this level. . . . . . Since I feel we are still forming the 4th wave the highest probable count suggest we should end this with 4155. If it doesn't end there we might be staring at a level of 3800 or worse'. . . . .

On 24th June Nifty made a low of 4156.10 and closed above it. The price movement today was an expected reaction of value buying by investors as large amount of stocks were 'supplied' at cheap prices. Nifty again closed above the 4155 pivot and restricted its fall. There is a clear 3 downward impulses corrected by two corrective waves making it a clear 3 down and 2 up 5 wave pattern. The graph on my count placed a mini um target of 4155 which has already been met. It looks something like this.

The corrective 'C' wave has met the minimum price target of 61.8% of wave 'A'. It has also achieved the minimum price target of the subwave structure 5th wave of 61.8% of wave 3. The 5th wave achieved these targets in 6 days which is just a day less than the time take for the 1st wave to form. It was also approximately 1.5 times the 1st wave which was of 400 points.

There are other few points to look at before coming to a conclusion. The market came up nearly 160 points up from low and formed a piercing pattern with high volumes and that too at a pivot point.Today the Nifty index closed with RSI cutting the oversold region form below and closing above it. This happened on a day when it was presented with heavily bearish news. Have a look at this Japanese candlestick pattern.

In my previous blog I wrote . . . . 'I feel that the markets may actually be moving towards an important bottom. That bottom can get formed even this coming week and we may move higher from there. The wave pattern suggests that we may be in for a sharp cut but the time this can last seems short' . . .

Now where do we go from here?
The best thing to trade this market was to get out of it today on the opening blip. Now its time to sit out for two more days and let the pattern resolve itself if one is not on the buying side. The wave count that I have discussed above have another alternate count possible which says that we may be forming just the 1st wave of 5th of 'C'. However this will be tested as and when market tests 4448 and 4680. If market goes above these levels, this count will become a low probability count. Importantly complex corrective pattern (like to one getting formed in Nifty currently) ends with rather simple elliott wave patterns. So we have already achieved one of it.

As discussed above we have achieved all the minimum price projections. However markets can move far beyond the minimum and surprise everyone. So it would be wise to see how it behaves and resolves in the next few trading sessions.

I feel if we close this week above 4280 then there is a higher probability of a short term bottom being formed. However as I wrote earlier, if we close below 4155 on a daily basis 3800 would get me very interested.

At this point aggressive trades would buy the 4150 declines with a risk level of closing below that point. That could be very adventurous. Strong overhear resistance stands at 4450 and 4680. Those points will be the key for prices to resolve into something meaningful.

The Repo rate hike and the rise in CRR was in essence bullish. It gave first cues that the government and the central bank are actually doing something to get down the inflation figures rather than just talking. The market is facing three important risks -

~ Inflation, INR depreciating and leading to higher prices of imported goods
~ Higher crude prices causing worsening of the fiscal deficit
~ Uncertainty about the government at the centre

If investors get answers to these questions, markets would recover swiftly. Meanwhile we will let the price guide us. Market can humble even the most intelligent of traders. Its important to listen to it.

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