The Light at the End of the Tunnel - I - Sainik

After a tumultuous July wherein I have been consistently bullish, here are my thoughts for the foreseeable future.

Technicals: I use Elliot in the broader sense, when I look at the markets and it has always worked very well for me. I do not care much for the C1's and C2's, X waves, etc., because I want my indicators and oscillators to be simple and, more importantly, a decision-making tool. So, by my interpretation of the Elliot structure, the market bottomed out at 3775 levels, at the height of pessimism – remember July 11 thereabouts, when every Tom, Dick, Harry and Harry’s Dick were sure India was staring at a black hole.

The first wave, which is typically very sharp, took us to around 4540 levels. Then the pessimism set in after the RBI interest rate hike, and it fell to 4150 levels. Again, every Tom bear, Dick bear and Harry bear shouted from the rooftops: I told u so, that the previous rally was a "fake".

As per Prechter, the conditions prevailing at the end of the second wave are equal or worse than that prevailing at the bottom, yet the market does not go lower than the previous bottom. See how well this fits in with the current scenario.

From a second low of 4150, the market took off. This is the third wave. One of the characteristics of the third wave is that it is generally smooth, long lasting and, slowly and surely, all encompassing, and it will ultimately cross the high of the first wave. At this point of time, we should not worry too much about the A/D line, because in the beginning part of this wave there would be many disbelievers and it would usually be led by the large caps. Also in this phase, the good news will attract bigger rallies and the bad news will get digested more easily and faster. Watch what happened on Friday. As far as my reading of Elliot is concerned I am looking for higher levels in the foreseeable future.

This Claimer: As usual, I advise people NOT to follow my advice blindly. My risk-taking capabilities are far higher than many traders’. Further, not understanding my strategy in its entirety and trying to implement it could put your capital at unknown risk.

Also read: Light at the End of the Tunnel - II