Markets getting to the Peak but not yet Peaked out!!

For last more than one year its been a sea saw between peaking out and bottoming out in Indian Markets. And this time its no different. As you can see markets have bounced back from the recent lows and now waiting to peak out. The million dollar question is which level it might peak out. Here we show you major 3 indicators which help you in judging the peak.

Firstly if you see the below figure which gives you maximum extent of movement that is possible in terms of Elliott Wave Theory which market seems to be following very studiously. The maximum level that market can go in this pull back is 5335 which is the peak of the 1st wave of the downward impulse move which started in Oct 2010. And this current pull back is the 4th wave which in EWT should not retrace the 1st wave which we mentioned above.

The Second Evidence for market not yet peaking out is shown in fig below. Here we are dissecting this 4th wave shown above to understand the movement little more accurately. Here the pattern that market is making in this move in terms of Elliott's 5 waves is shown. In this figure below we can see that the 3rd wave of the relatively highest degree in this 5 wave structure is still formulating itself by getting divided into smaller and smaller sub waves. Which means unless this 3rd wave is completed we will not be in a position to say that market is peaked out (Assuming that 5th wave will be a truncated one as market is near its probable peak).

The last but not the least is an indicator shown below which gives the FII net flow data (daily basis) in both equity and F&O segments. Interestingly if you notice FII net inflow has peaked every time in last 3 instances at the peak of the market which has not happened still in the current scenario. One more interesting thing about the FII inflow is that net inflow in F&O segment has peaked 5-7 days earlier than the peaking of the FII equity net inflow. As you can see in the figure the peaking of the net inflow has not happened in both the segments yet we might have to wait for some more days before the market could peak out.

Overall the strategy for time being should be to wait for the signals of market peaking out as explained above. We will be updating our strategy for Feb month as soon as we get these above signals.

Beauty of Elliott Wave Theory !!

As being an admirer of R N Elliott's phenomenal discovery of the, almost accurate, underlying structure of any freely traded market I was curious to know whether the same theory is being applied in the fluctuation of the volumes in Indian Markets from the time the data is available and I found the following (shown in fig below)

The graph above is self explanatory as you can see the move in volumes of Indian Stock markets (NSE) from 1995 to 2011 is been perfectly conforming with Elliott's Wave Theory in terms of most of its guidelines and rules.

Also if we apply Fibonacci ratio analysis to this graph the overall up move which we have seen in volumes from 1995 to 2009 is been correcting since and the correction will continue till the time the whole up move retraces 61.8% on the downside. As you can see in the chart the numbers written in red color are the volume figures at bottom, top and 61.8% retracement juncture. 

So before the volume could pick up in the markets it has to dry down to 61.8% retracement level (shown with red line). So this is also a signal for us to know that the markets have bottomed out.

Markets are poised for bounce back upto 5070

In the Figure below as you can see it looks like Nifty has completed the 3rd wave (shown as bold number) of the downside Impulse move and headed upwards to form the Corrective 4th Wave (shown as bold number). If this analysis holds then nifty is about to retrace 38.2% of the completed 3rd wave which comes approximately at 5070 as shown in the second fig below.

 

Also the Interesting thing is that the 61.8% retracement of the 5th wave (shown as normal number) of the Larger 3rd wave(shown as bold number) also comes near the 5070 Level as shown in below fig.

Which confirms the Min upside as per the above analysis using EWT is 5070. This is because the direction and magnitude of the movement of the market is always inclined towards the direction and magnitude where more Fibonacci relations are fulfilled.

Overall one can easily go long at the current nifty levels with a Minimum target of 5070.
Also one has to note that the maximum upside for the nifty is capped at 5350 which is the termination point of the 1st wave which the 4the wave should not retrace as per EWT.

Note: The Wave numbering is been altered a little from our previous analysis mainly on the 5th wave of the 3rd wave respecting the markets flexibility to create alternatives.

Whether History Will Repeat Again??

As all of us are waiting for the stock markets to bottom out and start moving up to create real wealth for the economy and the people, here is one interesting insight to Predict the bottoming of this market on beforehand so as to get the full benefit of the following upside.

As we can see from the above chart every time the markets have fallen more than 30% from its peak it has bottomed out with a signal in Long Term KST with both the Green line(Long Term KST) and the Red line ( 9day moving avg of KST) falling below that Oversold Zone Line which is acting as a support for the indicator and in turn for markets. In the Chart you can see the 2001 fall which is the 2nd Wave of Cycle degree bull market as per Elliott Wave theory has ended with Long Term KST and its 9 day moving avg falling below that support line. Also Same phenomenon is repeated in 2004 fall, 2006 fall and 2008 fall without fail. This Phenomenon can help us at least in predicting the Near bottom levels of the markets from where it can start picking up with conviction.

So we can conclude from this discovery with a reasonable degree of confidence that markets have not yet bottomed out so as to jump into it for making investments with conviction. All retail people can wait till this phenomenon unfolds and then make their decision to enter the markets with their hard earned monies. There is no need to panic with a left out feeling and buy in the markets every time it goes up in a bear market rally.

Nifty Continuing its 13-15 Week Cyclical move

In consistent with our previous posts Nifty looks to be continuing with its 13-15 week cycle which we discovered on 19th may 2011. Also there is one new pattern emerged as shown in the figure below that every alternate time nifty completes the 13-15 week cycle it creates a New Low. So this time as shown in the figure it looks like Nifty will pick up from current levels without creating a sharper new low which means a short term pullback rally is expected.

This move can stretch up to 4932 levels which is 38.2% retracement of the downward Impulse Wave created by Nifty as per Elliott Wave Theory as shown in the below figure. Also the 5 wave impulse pattern found in Long Term KST also confirms the reversal of the down move on a short term basis.

Our Previous Posts on our Website (for reference)

(Posted on 5-May-2011)
https://drive.google.com/file/d/0B8gu9KNFhbuJdDRWRzh2ZVgzcTg/view?usp=sharing
  
(Posted on 19-May-2011)
https://drive.google.com/file/d/0B8gu9KNFhbuJVGU4SUEzVDM1SkU/view?usp=sharing

(Posted on 31-May-2011)
https://drive.google.com/file/d/0B8gu9KNFhbuJSHBMWnh4TkpPckU/view?usp=sharing

(Posted on 09-June-2011)
https://drive.google.com/file/d/0B8gu9KNFhbuJc05oUkp0MDl1VEE/view?usp=sharing

(Posted on 29-July-2011)
https://drive.google.com/file/d/0B8gu9KNFhbuJcDF0X3R6LTVJV0U/view?usp=sharing

(Posted on 19-August-2011)

https://drive.google.com/file/d/0B8gu9KNFhbuJdnhRcldpSmF1N1k/view?usp=sharing