Corrective Phase Of Wave C On, No Respite Seen
The fears of further deterioration is compounded by the fact that some of the bluest of blue chips have lost ground in recent times.
Lets face it. The economy is not all that hunky-dory as it is made out to be.
And there is not much that anybody can do any thing about the sort of rut that we find ourselves in, at least in the short run. Nevertheless, this is not the place to discuss about the fundamentals, and it would be prudent to analyse how the market is expected to behave.
In my article in The Smart Investor of Business Standard dated July 22, 1996, it was anticipated that the Sensex will touch a minimum level of 3100 points.
This happened on Friday, October 4, 1996, when it closed at 3101.27 points. The way the markets are behaving it seems the bearish trend is here to stay.
Perhaps it would not be wrong to say that currently the markets are in a phase where all the ground gained in the past several years is being corrected.
In terms of the Elliot wave theory, we are in wave C of the corrective phase. Without going into too much details, it would suffice to say that on the completion of wave 3 (which in itself consists of five waves), we have to go through the motions of wave 4 and wave 5 of a larger degree. It seems likely that the markets are not going to improve for quite some time.
Analysing the current behaviour of wave 3, it seems that the length of wave 1 is 542.17 points (3820.96 minus 3278.79) and the probable amplitude of wave 3 should, therefore, be 877.23 points.
Wave 2 of the current wave 3 has ended at the September 3, 1996, high of 3586.89 points. Thus wave 3 should end at a minimum level of 2709.65 points (3586.89-877.23).
At the end of this we have to await the completion of wave 4 and wave 5 of the current wave 3. And finally, there will be wave 4 and wave 5 (this, by definition, will consist of 5 waves) of a larger degree to contend with.
Currently the medium term indicators which were showing positive divergence have failed to generate any upward movement in prices and have again turned down further perpetuating the bearishness. In a very short term, it is likely that there may be a small spurt or a lateral movement. But this will be short lived and further deterioration will take place.