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!

Socionomics - Prechter's Genius

Robert Prechter of EWI, has made some brilliant calls in his career. Although he may not have been on the  money, with his recent short-term market calls, but here's why i've loads of respect for this guy - the man's a genius when it comes to socionomics.

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Tea Party: Why NOW?
By Vadim Pokhlebkin

The Tea Party has gathered enough momentum to become a political force. According to an April Gallup Poll, "28% of U.S. adults call themselves supporters of the Tea Party." (gallup.com)

Earlier this year, New York Times columnist David Brooks wrote this (underline added): 

"Over the course of this year, the tea party movement will probably be transformed. Right now, it is an amateurish movement with mediocre leadership. But several bright and polished politicians... are unofficially competing to become its de facto leader. If they succeed, their movement is likely to outgrow its crude beginnings and become a major force in American politics."

I realize the Tea Party itself is a politically charged topic. But set aside your personal opinions for a moment, and please read the quotes below. They are from Robert Prechter's October 2003 Elliott Wave Theorist.

In that issue, EWI's president gave several prescient forecasts regarding social life and politics in the coming bear market (underline added):

• "Social groups, including economic, political, religious, genders and classes, will polarize and splinter further. I.e., they will polarize both internally and with respect to opposing groups."
• "Both patriotism and anti-government sentiment will grow into powerful emotional forces."
• "Politics will become far more polarized, splintered and radical."
• "The U.S. will accelerate its trend toward socialism. Opposition to that trend will be vigorous."
• "Third parties will gain political clout and win local elections. Libertarians, greens and others will capture many local offices and probably at least one state government." 

How was Bob Prechter able to predict the emergence of a third party and the polarization that's been tearing this country apart for the past few years?

He did so by using socionomics, the new science of social prediction based on the Elliott Wave Principle. It postulates that social mood (an unconsciously shared herding impulse) drives social events. Elliott wave patterns in stock market charts reflect social mood. Thus by forecasting the stock market you can also anticipate the tenor of social events -- often with stunning accuracy, as you can see.

Find the idea of socionomics fascinating? You're not alone -- the folks at EWI's sister organization The Socionomics Institute share your passion. You can read their latest socionomic observations and forecasts every month in The Socionomist. Take a look at what's inside the latest issue. (You also get instant access to May, April, March and February Socionomist issues.)

Shanghai Composite: Why i am BULLISH medium-term!

Last week's decline on the SSEC, got tongues wagging & China bears smacking their lips in excitement. This weekend i suggested that this was the final shake&bake, to throw panicked retail feeders off the trail. And yes, i maintain my medium-term bullish and long-term bearish, outlooks. Just like it has in the recent past, Shanghai will probably lead again with the recovery. This long-term chart below, going back 13 years, speaks volumes:

Elliott Wave Theory

... is the primary reason i expect another wave up. After an impulsive decline from the 2007 highs, a corrective move up is expected, (most likely in the form of an A-B-C), followed by another impulsive decline. SSEC led the world recovery in Dec'08 with an impulsive wave A up(stopped by the 38.2% fibonacci retrace), and has since gone sideways-then-downwards in wave B. Now we can expect a wave C up. (Elliott Wave corrections can turn up in other variations, but this is the primary view for now)

Trendlines

... let's justify the name of the blog! From the chart above(click to enlarge), observe three different trendlines converging in the 2200-2300 area (green circle):

1. Bottom channel line
2. Horizontal line from 2001 top
3. Rising trendline connecting 2005 & 2008 bottoms

Hence, a high probability area for a turn. Now let's zoom in:

Observe the following

1. Price is currently holding at the 61.8% retrace level, and a natural historical support level.
2. Declining volume with the decline in price
3. Clear positive divergence on the daily RSI

Socionomic Reasons

Introduced in an earlier post, socionomics is the study of social mood and its results in social actions. Here are some contrarian signals suggesting China may be reaching a short-term extreme in negative sentiment:

1. Widely publicized labour strikes for wage increases.
2. Bad fundamental(PMI) data, adding to negative news flows.

Suppport Levels & Targets

In the short-term, prices may take a while to stabilize, before a rebound. As long as they remain above 2200, the medium-term bullish view remains in force. The next serious support is the previous low of 1750.

Significant resistance level initially is 2700. Minimum target for wave C medium-term would be the previous high of 3450. Further levels to the upside are 3900 & 4400. After that, an impulsive decline should follow, but that is a long way away.

If all the EW talk about impulses & corrections is confusing, feel free to browse this free Elliott Wave Tutorial, or this basic Elliott Wave Video.

Just my view folks, do your own homework & have a plan, before parting with your hard earned dough. All the best!

SENSEX, Soccer & Socionomics

What? Everybody knows Indians don't play soccer. Ok, here's why they should - at least this year!

But first...

Sensex: Approaching Upper Channel Resistance

Bombay SENSEX has been trending sideways-to-upwards since Oct-09, and has refused to make lower high or lower low yet! Contrast this with the panic in top world markets, and their corresponding world cup soccer teams. Daily chart below.

Sensex has dutifully rebounded off the lower channel line, and is poised to kiss the upper line, and historical resistance area of 18000. Note the converging moving averages around here, suggesting a setup for a significant move in the next few months. A sustained break above this area, will target just above the all-time highs of 21200. Initial support on a breakdown lower, is at the lower channel line.

Soccer

I wonder if there's correlation between country stock indices and their sports teams. A booming China clearly took the lead in the last Olympics, while England & France are struggling to stay afloat in the current world cup. If there IS a correlation, Brazil(or another S American team) might just win this year, based on its stock market outperformance since Mar-09! Among the "developed teams", Germany looks to provide the biggest challenge.

Too bad, the Indian national religion is Cricket! The line in cyan is the SENSEX.

Socionomics

If you like pschology, sociology and the stock markets you'd be interested in the emerging field of Socionomics. "Socionomics is the study of social mood and its results in social actions. It studies how waves of endogenously regulated social mood in turn regulate changes in the economy, political preferences, financial markets, pop culture, etc." ... and might i add sports? ;)