The following post is again a guest post by Mr. Ankit Sandhu. As I said, Elliott Waves is his speciality and he has shown another way how the waves can be numbered. Though, his analysis is slightly different from mine, but, you, as readers, should be happy that you are getting another point of view. I will revisit my Elliott Wave Analysis in a couple of days. Over to you, Ankit.
Since start of Jan 2013 Nifty was crawling
and was showing signs of weakness which was very clearly visible. Every analyst
was happy that Nifty was up 35% from the Dec 2012 lows. Then it started going
southwards, there was no buying, valuations were high, fundamentals were not
supporting. We were struck by bad news. Markets fell and Indian markets
underperformed when compared to global markets. Vikas Sharma Sir did his Elliott
wave analysis and it was justified because it had no signs of an impulse wave. Strength
wasn’t there so we assumed it was in fact a correction wave. And possibility
was there that we again might visit our 2012 lows.
Because this is a diagonal, overlapping of
2nd wave and 4th wave is normal.
If you notice there is no over lapping of 2nd
and 4th wave in Junior Nifty
Index. This index is the closest proxy for Nifty.
When I analysed the waves’ sub divisions, some
amazing facts appear that in our Indian markets second waves retraces 75-78.6
percentage and fifth wave extensions are very common. Their momentum tends to
be very strong before suddenly reversing. This appears to be an important clue
that we might see extended fifth waves in this cycle wave V and I am assuming
this market cycle will last for 8 years from bottom of 2008 because Indian
cycles have been increasing in time. And in fact if it does happen, what a
crazy ride it’s gonna be.
Other confirming factors
Personality of
waves
This wave has the personality
of both 1st wave and the beginning of the 3rd wave, which
is a state of growth picking up and confusion and low confidence in the markets. Every time markets go down, some good news
comes from the govt in the form of reforms. RBI rate cuts, falling inflation
rates, revised GDP and fiscal deficit targets are all examples of these good
news. This is typical of 3rd wave after a 2nd wave
correction. People are cautious and there is still uncertainty in global
markets.
Falling commodity
prices
Biggest confirmation has been received from
GOLD. It has broken its 10 year bull run and will continue to fall, which means
that stocks will be back in action and will outperform other asset classes. Metals,
crude and other commodities will continue in down trend which is positive for
India.
Global Markets
American markets are the leading players in
this bull market. If you pick any world index you will see the same wave
structure, that is, beginning of a 3rd wave of grand super cycle V
wave. Every index, be it, DJIA, S&P 500, EURO STOXX, CAC, FTSE, HANG SENG,
Nikkei 225 (which is in the beginning of a major bull rally after 20 years of
bear market), has seen its lows retested and is again getting ready for a bull
market. If we look at the bigger picture, global equity is bullish, interest
rates cuts all over the world, America’s data is turning positive, Fed's
quantitative easing is keeping the markets highly liquid.
(Pink is for DIIs and green for FIIs)
Right now in markets, only FIIs are buying
which is due to high global liquidity. As the developed markets indices are
rallying, the FIIs are adding emerging markets also to their portfolio. But
they are here for long term. This is smart money. Global investors are adding
some of its pie from India, because of that, prices are going up. On the other
hand, DIIs are selling it all because they are the traders and are selling in
strength, that is, they have FIIs to absorb their selling. Everyone is cautious
expect the general public, which is again typical of fifth wave, but the bigger
picture is only bullish.
MY
NEAR-TERM VIEW
For the near term dollar is a problem. It
is likely to gain strength and will go to 58-60 levels which again will cross out
the benefits that we should be receiving from falling commodities. But as rupee
will depreciate, it will attract more FII inflows. Increased consumer demand
for gold will prevent decrease in India’s fiscal deficit targets. So overall, there
is no loss no profit situation for India. Moreover, this rally has almost
completed its 5th wave and I NOW expect market to correct.
My long-term view is positive
Bull
market is here. India will enjoy unprecedented
growth, foreign money inflows and FDI. And I am assuming it will last for
another 5 years from now because that’s how we should assume. You see, Elliot
wave principles state clearly that markets move 3 steps forward and 2 steps
backward. Our markets primary direction is only upwards. Markets have been and
will always go up making new record breaking boom and bursts and that’s how it
has been for past 400 years in the stock markets.
Remember markets discount everything and
all these factors are already discounted by institutions they will buy on every
dip. I am expecting a correction back to 5200-5500 only. GO
long after that.
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