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Friday’s low, at 9280, was also close to the top of previous consolidation. We can, therefore, consider 9280 as the crucial downside level for the channeled up move from 8467 (2nd Dec). Stop-loss for any long position may be kept just below this level.
On the upside, 61.8% correction level to previous 10-day fall (from 10945 to 8316) is at 9941, above which, 80% level is at 10420. The value on the upper Green channel line is at 10022 on coming Monday, and will go up by 130 points every day. Trading higher within the channel would target any of these levels.
As can be seen on the chart below, ever since its ‘Jan highs, Sensex shows falling segments lasting for 10 to 11 weeks, which are then followed by rallying segments lasting anything from 4 to 7 weeks. As promised by this time study, Sensex has indeed completed 6th week holding above its ‘Oct lows. By the next week (7th week), however, this promise gets over.
From its ‘Oct low of 7697, Sensex can be seen making smaller moves but consuming more time. It moved 3248 points from 7697 to 10945 in 6 days. This was followed by 2629-point fall from 10945 to 8316, which consumed 10 days and corrected 80% of the ‘Oct rally in 161.8% time ratio.
The current channeled move from 8316 onwards has already taken 14 days to retrace only 54% of the fall. This segment completes 161.8% time ratio to previous down-move on coming Tuesday. The 34th day (Fibonacci Number) from ‘Oct low will be on coming Thursday.


- By Vivek Patil, India's foremost expert in Elliot Wave Analysis

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The current up move post-8316 has completed 19 days so far, and would complete 21 days (Fibonacci Number) this Tuesday, which is also exactly 233rd day (another Fibonacci Number) from ‘Jan high.

I had observed that “Within such contracting structure, with subsequent moves consuming more & more time, trading would be treacherous.”

Based on time cycle, I have been arguing that “we are likely to see the (‘Oct) bottom at 7697 holding till the end of this year, resulting in a positive market for the next 4 to 7 weeks.”

As can be seen on the chart below, ever since its ‘Jan highs, Sensex shows falling segments lasting for 10 to 11 weeks, which are then followed by rallying segments lasting anything from 4 to 7 weeks. As promised by this time study, Sensex has indeed completed 7th week holding above its ‘Oct lows as promised. The validity period of this promise is now over.
The 10K mark, which is also about 61.8% correction level to fall, has been a crucial area. We may look for a strong bull action piercing through this area. While Sensex did give two closes above the area, a strong action is still missing, at least so far. As a result, the 10K area is proving to be a battleground between bulls and bears.

Last Monday’s gap-up area was “closed below” on Wednesday. Sensex is now trading near the lower end of the Green channel. However, the “Daily close only” chart is still showing higher top higher bottom formation, encouraging bulls to support the market at dips.

If the bulls find it difficult to hold above the 10K mark, they may be forced to give up, because the time taken for the rally since 8316 is almost double now, a much slower rally compared to the previous fall of 10 days.
parameter that leads to the actual lowest value of the bear cycle is the catastrophic event. Such event would be a terrible disaster or accident, especially the one that leads to a great loss of life. The last two cycles had seen terrorist activities, serial blast in Mumbai during ‘1993 and WTC tower collapse during ‘2001.

These events happen suddenly, without any warning, and their catastrophic proportions are not known even while they are happening. During ‘1993, one blast would have been normal, but 13 serially proved catastrophic. During ‘2001, 1st hit could have been an accident, but two in succession was catastrophic.

These events led to such desperation that the lows created thereafter were never ever broken again, Sensex low of 1980 during ‘1993 and 2584 during ‘2001.

Ironically, therefore, such events did, and will provide the best of the investment opportunity to an investor, who is able to take it when it comes. If so, we could be on watch, from now till whenever it occurs. Perhaps, the 13th month, i.e. February’2009 could be the focused time zone.

With the recent terrorist attack on Mumbai, such event has indeed taken place (though I had focused it during Feb’09 time-wise). But it did not generate the negative impact on the market, which is required to be seen at cycle bottoms. Do we, then, prepare ourselves to see another such event in the first quarter of the next year ?


- By Vivek Patil, India's foremost expert in Elliot Wave Analysis

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1st alternative wave-structure : Wavve-count wise, Sensex may have just finished an ending Triangle from 10750 (instead of previously assumed 11870), which was the last corrective of the Triple Combination fall from ‘Jan high of 21206. These labels have been marked in Blue color, and are taken as the first alternative wave-structure. This is a bullish count, which indicates end of the Triple Combination from ‘Jan highs.

A Triple Combination can occur only as the largest leg of a Triangle (or Terminal). Therefore, the fall from ‘Jan highs is likely to be the “a” or first leg of the larger Triangle.

A Triangle always has exactly five legs, to be marked as a-b-c-d-e. If the “a” leg of the Triangle is over, configuring as a Triple Combination ending with a Triangle, then “b” leg should move higher to about 50% of “a” leg. Remember, of the four retracing legs of a Triangle, 3 out of 4 should retrace at least 50% of their respective previous legs.

The entire Triangle, consisting of five legs, could consume 3 to 5 years.

The move from last week’s low of 9163 took exactly the same time as the fall, as seen on the Daily chart. On intra-day chart, in fact, it is slower. Due to such slower retracement on intra-day charts, I am keeping the following alternative count in mind :

2nd alternative wave-structure : Index may be still forming a Bow-Tie shaped Diametric into an “x” wave since ‘Oct lows (instead of Triangle assumed earlier). These labels have been marked in Purple color. This is a bearish count, suggesting one more corrective to occur on the downside, before post-Jan Triple Combination gets over.

Bow-Tie shaped Diametric is 7-legged mix of two triangles, first Contracting and then Expanding.

This alternative supports the theory that some kind of catastrophic event would be seen in the 3rd corrective, creating the lowest value, preferably near 6150-6500, as argued elsewhere. Creation of permanent bottom value needs such an event, which is a matter of simple history of the stock market at least during the previous two bear cycles I know of.

Another observation during the fall since ‘Jan has been that none of the rallies on Sensex, except for the rally to 17735, lasted for more than 6 continuous up days. Till Monday, Sensex has completed 5, and Tuesday will be the 6th day. Can this rally see an up-move continuing beyond 6 days ? More than 6 up days could be considered sign of strength, else this rally would be similar to any other rally seen before since ‘Jan.

Further, previous bear market rallies (since ‘Jan08) showed magnitude of about 3050-70 points. The first such rally was from 14677 to 17735 during this Mar to May. This was followed by another bear rally during Jul and August, from 12514 to 15580. Projecting from ‘Oct low of 9697, if the current rally can continue beyond 10800-10945, it would be another sign of strength.

These signs are beyond and besides wave structures, but could give sufficient indications of what to expect where. The first alternative wave-structure requires Index to break these jinxes, whereas 2nd alternative remains open otherwise.

Coming week or two should provide crucial clues on which alternate wave- structure is taking over.

The 8-Year Cycle and its implications
The next two important turning points occurred exactly 8 years thereafter, in '1992 and '2000. Both these turning points were marked by stock market scams, because of which the leaders of the rally had extremely difficult time later. For example, ACC, the leading stock of '1992 bull market, remained below its highs till end of '2004. Similarly, the IT stocks, which were leaders of '2000 rally, lost as much as 90% of their top valuations by the year '2003, and most are below their top levels even today.

This year, we were sitting on this very important cycle, which therefore, has thrown up similar possibilities.


By Vivek Patil, India's foremost expert in Elliot Wave Analysis

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Trading consistently above the top of the Doji, at 9413, Index, in such a case, can test 38.2%, 50% or 66% correction level to the “f” leg, which are at about 9530, 9708 and 9960 respectively, else which should break 8316\ ‘Oct lows within a short time.

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Last week I argued, “if the Sensex fails to trade above 9413, the movement over the last four days can be taken as Irregular C-Failure Flat as an internal corrective part within ‘f’ leg. Such a pattern would be bearish, and could lead to immediate retesting of 9124-25, and below that, open downsides of 8750 / 8590 or lower. In such a case, commencement of directional part downwards would be smaller ‘c’ within ‘f’.”

The development over the week was exactly as per this bearish contention. Failing to cross 9413 (making a high of 9410 on Monday), Sensex crashed 778 points or 8.25% from 1st to last day of the week. Indicating sustained bearishness, all the Daily candles during the week were bear candles. While the net loss measured 7% for Sensex, Realty / Metals / Banks came down by over 10%. Stock-wise, while Satyam recovered 58%, United Spirits gave away 34%. The Weekly candle for Sensex was a strong bear candle which broke the bottom of previous week’s Long Legged Doji.

This confirmed my contention for an Irregular C-Failure Flat within “b” of “f” leg of the assumed Bow-Tie Diametric. The calculation for pattern implication of such Irregular C-Failure Flat is based on 161.8% magnitude of ‘b’ leg (from 9413 to 8946), to be projected from the end of ‘c’ (last Monday’s high of 9410). This projected downside of 8665.

This pattern implication needed to be achieved within the time period of the Flat, which was five days. With Friday’s low at 8631, this pattern implication was indeed achieved within the required time limit.

The downsides also matched with the target based on the previous 400-point range within “b” of “f” (roughly between 9000 and 9400). Note, 9000 minus 400 gives 8600, which was nearly achieved.

Along with achievement of targets by both methods, after five continuous bear candles, the technical position is also seen turning oversold. As a result, we can see some recovery effort from the current lows. This can built a short-term bull scenario for us. Sustaining above Friday's high of 8859 would, however, be required to reclaim bottom of the previous range at 9K mark.

On further evidence, we may see if the “f” leg of the larger Diametric is ending, and “g” leg moving higher from here. If “g” opens upwards from here, then “f” developed as a Truncated Zigzag, which is a strong pattern and occurs only in Triangles / Terminals / Diametrics.

As I said last time, “’g’ can actually cross the top of ‘e’, but the same is not necessary.” It may rather move in a sideways manner, with upsides at 9000 / 9400 or higher.

However, I had also raised possibility that “x” ended at 10470 due to faster retracement below 9163. This, I said, confirms on faster retracement below 8316. Pending confirmation, we’ll keep this option open as well.

If the “x” is over at 10470, which is yet to be confirmed (and requires a faster retracement below 8316), then Sensex is dropping into “a” of the 3rd corrective (from ‘Jan high of 21206), which should break ‘Oct lows within a short time.

As I already mentioned, “Once the “x” gets over, the 3rd corrective would preferably develop as a Triangle. The ‘a’ leg of a Triangle is usually a violent action, which would threaten the low of 7697 made in Oct, creating the lowest value, preferably near 6150-6500 as the final sell-off of the bear phase. Remaining legs of the ending Triangle, b,c,d,e, would appears as a sideways basing action to complete the Triple Combination from ‘Jan high of 21206.”

This, I said, “would support the theory that some kind of catastrophic event would be seen in the 3rd corrective, creating the lowest value. Creation of a permanent bottom value needs such an event, and is simply a matter of history of the stock market at least during the previous two bear cycles I know of.”

I had said, “ending ‘x’, in effect, would mean that such a catastrophic event can occur within the next 5-10 days, whereas, the Diametric scenario, with ‘g’ leg developing upwards/sideways (as ending leg of ‘x’) before the big fall, is a way to postpone such event to a future date, probably to the end of ‘Feb-09.”

As I said, “‘g’ leg would be the last effort to protect ‘Oct lows, which can preferably develop in a failure wave appearing as a sideways consolidation.” Clarity on whether "x" is still forming as Diametric or is over at 10470 would be expected in the next week or two.

In case “x” is over, the configuration from ‘Oct lows developed either as a Triangle (because “e” was the smallest leg among “a”, “c” and “e”) OR as a Double Failure Flat with a c-wave Terminal (because of the overlap in 2nd & 4th segment, and “c” was 61.8% of “a”, though it lacked the Diagonal shape).

Bow-tie shaped Diametric, remember, was considered because “e” leg of the previously assumed Triangle moved above the top of “c” at 10188. It initially shows Contracting Triangle, which is then followed by Expanding Triangle.

I had already argued that after losing about 60% from highs, as per parameters explained for the 8-year cycle, Sensex would move closer to the bottom after 4 to 5 sell offs. Four sell-offs have already been seen. Until the faster retracement is seen on the upside, the fear of the 5th and final sell remains in place.

- By Vivek Patil, India's foremost expert in Elliot Wave Analysis

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Possible trgt 9767-10102 and head & shoulder trgt 10245

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