Sunday 29 January 2012

Markets getting to the Peak but not yet Peaked out!!

For last more than one year its been a sea saw between peaking out and bottoming out in Indian Markets. And this time its no different. As you can see markets have bounced back from the recent lows and now waiting to peak out. The million dollar question is which level it might peak out. Here we show you major 3 indicators which help you in judging the peak.

Firstly if you see the below figure which gives you maximum extent of movement that is possible in terms of Elliott Wave Theory which market seems to be following very studiously. The maximum level that market can go in this pull back is 5335 which is the peak of the 1st wave of the downward impulse move which started in Oct 2010. And this current pull back is the 4th wave which in EWT should not retrace the 1st wave which we mentioned above.


The Second Evidence for market not yet peaking out is shown in fig below. Here we are dissecting this 4th wave shown above to understand the movement little more accurately. Here the pattern that market is making in this move in terms of Elliott's 5 waves is shown. In this figure below we can see that the 3rd wave of the relatively highest degree in this 5 wave structure is still formulating itself by getting divided into smaller and smaller sub waves. Which means unless this 3rd wave is completed we will not be in a position to say that market is peaked out (Assuming that 5th wave will be a truncated one as market is near its probable peak).


The last but not the least is an indicator shown below which gives the FII net flow data (daily basis) in both equity and F&O segments. Interestingly if you notice FII net inflow has peaked every time in last 3 instances at the peak of the market which has not happened still in the current scenario. One more interesting thing about the FII inflow is that net inflow in F&O segment has peaked 5-7 days earlier than the peaking of the FII equity net inflow. As you can see in the figure the peaking of the net inflow has not happened in both the segments yet we might have to wait for some more days before the market could peak out.


Overall the strategy for time being should be to wait for the signals of market peaking out as explained above. We will be updating our strategy for Feb month as soon as we get these above signals.

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