Wednesday, June 25, 2008

Will the Prime Minister Resign Today?

Yesterday the RBI increased the CRR to 8.75% up 50 basis points and increased the repo rate also by 50 basis points to bring it to 8.5% as against the 8% that it was at currently. This was largely expected by the market, but a small and immediate reaction was to be expected, as our column had predicted yesterday. And that is what happened at the opening bell. The Nifty opened a 100 points down and immediately started recovering from there. It recovered for a couple of hours before it went into a small 30 points range for over 3 hours. Finally, it showed a brief and small spurt in prices in the last 30 minutes.

The UPA-Left meet was expected today on the nuclear deal issue and since that did not happen till the market closed, there was no reaction. It is surprising that the government has yet again managed to buy more time. This time the members of the meeting decided to meet again to ‘finalise the findings’ on the deal. While it was announced that the meeting would take place ‘in due course’, it is not expected to take place before a couple of weeks. Meanwhile, there were rumours (as reported by a news channel) that the Prime Minister, Dr. Manmohan Singh, may tender his resignation before the G8 summit which is to start on July 8, 2008. There is a report of a cabinet meeting being held at 11AM tomorrow. I wonder if Dr. Manmohan Singh will submit his resignation to the cabinet then.

Nifty 60 Minutes Chart - Elliott Wave Counts

Seen above is the same 60 minutes chart of the Nifty that was shown yesterday, except that it has been updated with today’s data. As expected and discussed in yesterday’s post, the Nifty bounced back from its wave 5 target levels after a positive divergence was seen between the Nifty and its Relative Strength Index (RSI). If this was the end of the wave 5 of the corrective wave C, it would mean that the bear trend has ended today. Is it so? Well, that is very difficult to say right now. That is the problem with the end of trends. It is not possible to say that the trend has changed unless a confirmation comes through. Unfortunately, a confirmation of the intermediate trend changing will come only if the Nifty were to cross 4680, while a warning that a trend change might occur will come if the Nifty were to cross 4530. This level may change with time. Elliott Wave specialists can say with certainty whether the trend has ended or not even before the confirmation comes. But I hear no analysts shouting from the rooftops as yet that this is the end. I, myself, am no specialist of Elliott Waves but my analysis says (considering that our wave counts are correct) this may have been the final low made by the Nifty in this downtrend. However, if Dr. Manmohan Singh does resign tomorrow, we shall have another deep knee jerk reaction which will lead to capitulation and then a final low being made. It is difficult to say whether a final low would be made now (in a day or two) or shall we have to wait till the last week of August as our analysis on Fibonacci techniques suggested in an earlier post.

The Nifty opened about 100 points down today but I wouldn’t go as far as to say that it was capitulation, mainly because there was no selling climax. In the absence of a capitulation and a selling climax, it will be very difficult (and risky) to say that a final low has been made. What options are we left with? A short term uptrend shall be signified above 4328 while an intermediate term uptrend, as already mentioned, shall be confirmed above 4680. I’m afraid, at the moment we do not have too many options but to wait and let the market tell us what it wants to do. I would be much more confident about predicting the markets after the government falls. Let us see if that does happen.

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