| Every price pattern represents a certain mood of the markets. Once a particular psychological trend sets in, it runs its full course till completion. |
| During the course of the development of the pattern, its structure suggests different possible outcomes. Hence it is impossible to predict the market movement every time. It is only when the pattern is about to conclude or is over that analysts identify the same. |
| A change in public mood or opinion is a natural phenomenon. Any psychological trend, once established, becomes so strong that any fundamental reason may affect it only for a short period of time, but cannot simply reverse it. |
| On the contrary, on many occasions, fundamentally good news ends a bull market and a bad one ends a bear market. This sets the necessary background for my technical contention that markets may not shine any more for a long time to come. |
| Technical perspective From a technical angle, a long-term corrective phase called 'diametric formation' can be seen on a monthly chart of Sensex from April 1992 to May 2003. |
| The up-trend that followed thereafter definitely seemed to be strong on the chart. It appeared to be the beginning of a new bull market that would easily surpass the long-term consolidation zone between 1992 and 2003. |
| For a short-term analysis, I have chosen a much broader index than the Sensex - BSE 500. The move from 1089 to 1422 appeared to be wave 1 (or A), followed by a double three running correction up to 1579. This was marked as wave 2 (or B). |
| The implication of this running corrective is an impulsive move upwards which would be more than 1.618 or 2.618 of wave 1. The move that followed did meet these expectations. |
| On the daily or even weekly charts, it is a properly sub-divided impulsive wave C whose fifth leg is now in progress. I am expecting the fifth leg to 'fail' for the following two reasons: (1) The third leg is clearly an extended wave, and is little more than double of the first leg. (2) The second leg is an 'irregular failure flat' which justifies the extension in the third leg. |
| But the fourth leg has retraced the third by more than 61.8 per cent. It has also cut the 0-2 or 0-B trend line which in any case should not have been broken. Both these events point to the weakness present in the market. |
| Taking into account the occurrence of these events, the entire pattern from May 2003 has to be labelled as A-B-C zigzag (and not as impulsive 1-2-3) within which the fifth leg of wave C would fail to cross the top. If that happens the entire wave C will be fully retraced taking the index down to 1579 level (Sensex 4100). |
| On the long-term monthly chart, the A-B-C pattern can possibly be labelled as a 'large X-wave'. Then the expected crash would begin another Elliott pattern (the second corrective within a large complex corrective) which would run its course for at least seven to eight years in future, most probably hovering in the same price zone. |
| This analys is done using Glenn Neely's Neowave theory. But finally the market is supreme and will prove my analysis to be right or wrong in a few weeks to come. If it is right, then the passive onlookers would find their wealth deteriorating very quickly, leaving them with only stocks and no money to reinvest at lower levels. |
| (The author is a Mumbai-based Neowave analyst and can be contacted at: medha_k@vsnl.com.) |
| MICRO TECHNICALS |
| SIEMENS Current price: 1117 Target price: 1225 |
| The Siemens stock has been consistently bullish for a long time. However it remains a relatively illiquid counter and that's a disincentive for traders. |
| In the past week, it completed a breakout from a saucer-shaped formation with a bottom around 955 and a lip at 1090. The resulting price target should be in the zone of 1225. Keep a stop at 1090 and go long. |
| ADANI EXPORTS Current price: 424.95 Target price: 465 |
| The stock climbed sharply on somewhat enhanced volumes on Friday. It has just completed a short-term bullish formation which should have a target of about 465. However, there is massive resistance around the 435-440 mark and this may slow down the proceedings. Go long and keep a stop below 415. |
| BAJAJ AUTO Current price: 930 Target price: 990 |
| The stock has developed a promising formation moving up from 870 levels on the basis of strong volume action. |
| It has just about completed a saucer formation, which should project to a target of around 985-990. There is massive resistance visible at exactly that point as well. Go long and keep a stop at 905. |
| GUJARAT AMBUJA CEMENTS Current price: 330 Target price: 380 |
| On Thursday and Friday, the stock completed what looks like a very significant breakout on strong volume expansion. It's difficult to characterise the formation of the last three months but GAC was trading in a wide range between support at 275 and resistance at 325. |
| Two successive closes above that 325 resistance level should now mean that it turns into a support and GAC should seek new all-time highs. |
| The long-term target of GAC should now be in the range of 380 and this ought to be achieved over the next 6-8 weeks. Go long and keep a stop around 315. (Micro Technicals by Devangshu Datta) |
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