Conversations – Weekend Sept 18

The post title is elaborate since I tought I will use the basic heading ‘Conversations’ for future dialogs also.

Re: Wave Counts given for the Nifty

B.M. Kajaria says:
The elliot wave principles applied by you are not correct. So please first follow the right principles while drawing the wave pattern/trend line in the nifty chart. They are as follows.
1. Wave 2 cannot retrace more than 100 percent of wave 1.
2. Of waves 1, 3 and 5, wave 3 can never be the shortest.
3. Wave 4 can never end in the price territory of wave 1.

My Notes: I think I have followed these basic rules. In fact, these are the only three rules I follow when trying to identify a wave count. Please tell me where I have gone wrong. Please note that my chart is titled wave counts and not “Elliot wave….”. This enables me to define a five wave count without getting caught in the web of Elliot wave rules (apologies to all Elliot enthusiasts!)

More from B.M. Kajaria:
In the chart the wave 1 and 2 that you are showing is the consolidating area of the nifty where it is building base from where a new wave starts only on 9th of march 2009 as per my opinion.

My Notes: You suggest an alternate wave count which will be equally valid. Shazia makes the same point “I think the point where the count should start is from March low.”. I will put up a chart with the start in March 2009. (later today)

Shazia also asks: “what is your opinion on the poll you have published, kindly let us know your opinion also.”

My Notes: The votes are surely a secret. I will of course share the results in this blog. Slowly, we could develop a sentiment indicator here. I hope so.

Viral Rajnikant Dholakia asks “Do u subscribe to the view that the Technical Gap left on the charts Post-Elecetion Rally needs to be Covered-up by markets sooner or later?”

My Notes: I am not a fan of “gaps will always be filled’. So, I do not subscribe to this view. But, I always believe that markets will revert back to their mean, excesses will be purged from the market. In that view, the retracement of the up move from 2200 to 5000+ could easily see the Nifty back to 3500, which, as a coincidence will fill up the gap.

The reason I do not subscribe to this view is my firm belief that the Markets can do anything. If this is so, Markets can then fill a gap, or, not fill a gap, or whatever else. I am wary of any rule that says “this has to happen”. Who decided that? It also means , while a reversion to the mean is expected, who knows what will actually happen.

Zia asks: “sir why you choose 3500″

When you look at the Nifty weekly chart, you will see a lot of activity around 3500- (a) when it was going up in 2006 – 2007, (b) when it was coming down in 2008, and, (c) when it rallied again. I rounded off that zone to 3500.

Danish Kapoor says ” don’t agree with the wave counts. Although, we are near the top but these wave counts are not according to the rules of Elliot Wave or Neo Wave. The wave labelled 2 should be wave 5 of the correction which started in Jan 2008. It was wave 5 failure that ended above the low of wave 3.”

My Notes: This is probably the correct / classical Elliot wave count. Does this mean the current up move is an A-B-C, or the first wave of a larger up wave. I hope you share your views on this. I do not go for classical elliot wave counts, since they rely too much on the past and the future, while I like to focus on the present.

Danish concludes wisely “All said and done, it is really how one manages the trade rather than counting the waves.”

Well said. If there is one lesson in this post, this is it.

NIFTY OUTLOOK

men says if the Nikkei could fall from 40000 to 10000 why should not the Nifty do so?
My Notes: One simple reason is that the Nifty is not at the bubble stage where the Nikkei was. Second, my point is: we almost did so last year. So, we have done our bit.

We have seen a 10 percent rally in the last 10 days. Such momentum is not sustainable. The Nifty should either consolidate or dip.