Saturday, June 21, 2008

Market Mayhem

'I think good trades are emerging in DJIA and local Nifty 50. We may see a very strong down move in Nifty tomorrow.'

The Dow Jones tanked below the heavily watched 12000 mark and the Nifty made a new low down the important support of 4400. Now where do we go from here. In the last one week a lot of things have happened. However we will first let the prices tell us where we stand.

We are in the 4th corrective wave of the minor impulse which itself is the 3rd wave of the primary impulse. The above graph would make it clear.

Market took strong support right at the 38.2% of the minor wave three retracement and made lows for nearly 4 months on 4450. Since we have broken past it and are following a 5-3-5 zig zag correction it seems we have entered the last corrective leg i.e. 5th wave of the 'C' downward corrective wave. The major trend is up. Medium trend is down and is broken rather convincingly now.

The charts are showing that we may be ready for a very steep fall on the Index on Monday. As steep as they come. The following chart would express my view.

The pivot low that can be expected from here is 4155. The market may tank further if we break this level. However an important support or should I say a 'Hurdle' stands tall for the Bears on 4280. In the first image above it is shown with a red line and is the 38.2% retracement level of the minor uptrend. 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.

There have been a few development today which can give markets further weakness. There have been reports of protest in some areas.

The government at the centre has suffered a setback as an important 'outside supporting' faction of the UPA government has removed its support.

Although most of this seems factored into the price, there can be further pain due to global weakness in the markets. Inflation reading touched 11.05% this past week and it is just the WPI which grabs the attention. The inflation in the hands of urban consumers stands at nearly 15% and for rural labour it stands at 20%. Interests rates are already way to negative. These facts are all well known and doesn't create selling pressure everyday. However they do make investors and traders nervous and remove those buyers who otherwise buy the Indian story at any price.

A market without buyers is like a falling knife. 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.

Watchout for Monday, could be a black one.

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