Friday, November 26, 2010

SENSEX, Scandals & Socionomics!

In my last update on the SENSEX - "Kimchi Curry, anyone?" - we were at a cross-roads. Along with its maternal twin, the Seoul KOSPI, the index looked vulnerable for a correction. Instead, the Sensex took off to test all-time highs, with the Korean brother not far behind. The test failed & a sharp correction ensued. Price is just about to reach a significant trendline around 18,800 (as highlighted in the chart), with promise of a short-term bounce at least. Upside capped by congestion at 19,800.

Wave Count & Supports

In the longer-term, it is possible that we have finished 5-waves up since 2009, as illustrated on the chart above. If so, we are potentially looking at a bigger & longer correction here. Possible fibonacci retracement levels - 23.6% & 38.2% - are roughly at 18000, and 15600 respectively. They are also strong historical support levels and thus great buying opportunities!

Alternative Bullish Count: Waves 3 & 4 could be nested i & ii waves in an extended wave 3. In this case, we may not see 18000, and the SENSEX may continue higher to all-time new highs from here, Jakarta style!

Sensex, Scandals & Socionomics

According to the emerging field of socionomics, stock market prices are the result of the social mood  of the population in question. During periods of negative social moods (bear markets), some of the biggest scandals & frauds are unearthed. There are countless examples in history, with the most recent high profile case of 'Bernie' Maddoff.

"India has been rocked this year by a series of corruption scandals that have embarrassed the ruling Congress party, rattled markets and delayed reform bills as the opposition stalls parliament.  "... Read more. All during the recent attempt of the Sensex to get out of the bear market slump, and picking up steam during the recent declines. Feel free to research & point out any other examples in other parts of the world. You will be suprised how predictable these outbreaks can be.

All the best!

Wednesday, November 24, 2010

$USD breaks out of downtrend

The US Dollar index has broken above its downtrendline, but is being pegged down just under resistance at $80, as suggested previously. A break above this level would be bullish with a target of $84. At the same time, it seems to suggest continued weakness in commodities and equities, in the near future.

Tuesday, November 23, 2010

Hang Seng Index, Short Term: An Impulsive Decline

With today's 600-point decline to the 22800 level, HSI has completed what-looks-like a 5-wave decline, or in 'Elliott speak', an Impulsive Decline. It has now reached the most recent support area, and thus a likely point for a Corrective Rebound towards 23600-23800 level, which might materialise in a 3-wave overlapping format. Feel free to browse the Elliott Wave tutorial under 'Education & Resources' if the terms intrigue you. Here's the daily chart:

Head & Shoulders

If the above is indeed a 5-wave decline, principles of Elliott Wave Theory dictate that some form of corrective upward action is due, before another decline to new rally lows. Classical technical analysts might identify this as a potential Head & Shoulders pattern. It's still early days though. A break above 23800, or an immediate break below 22800 will make this less likely.

Other Asian Markets

Other Asian markets (such as the STI) seem to be executing similar patterns too. The SSEC's bullish medium-term picture is in danger of a truncation, after the impressive runup and the deeper-than-expected decline. It might be prudent to take profits on the impending rebound.

All the best!