The Last Straw..Or the Last but One...

Was the RBI's July policy the last straw on Nifty's back? Look at the first chart here Bear Count..1, posted a month back. The reason that this didnot look like the first choice was the lack of strength of the last wave in the triangle as compared to the previous ones in the same direction. And true to the bearish mood, we did get a whiplash upside to 5750. 

However, if we don't treat the entire major "(B)" as a triangle, but as three distinct legs as we did here more than six months ago, Start of C?; then we  may now be having a possible fit for the last leg being a triangle that may have completed in July 2011 or about to complete soon. The picture below labels the same.

A simple variation of the above is that we are into minor "b" of the last leg of the above triangle that started from June 2011, with a pending final "c" to complete the entire correction that started in March 2009. Interestingly, in the above January write-up, we mentioned Jul-Aug 2011 as a potential time target for start of major C, in view of the equality between the first two segments, viz., 7 months each. We also talked of the terminal triangle being potentially sideways with price-neutrality that may or may not make a new high. What we had was a drifting down of the Pattern with serial failures.. 61xx, 59xx and 57xx. And Patterns can be expected to drift on the side of break.

Well here we are. In the first week of August, after 14 months since May 2010. So the time line as above fits. Secondly, the credit policy seems to be interpreted by the fixed income market as the possible end of tightening cycle of rates and the equity market is threatening to go below the important 5400 level. Both seemed to predict an impending recessionary period in the Indian economy ahead.  

What doesn't fit is that this bearishness seems to be well anticipated throughout the last phase. A phenomenon not usually associated with the turnarounds. May be the last "c" of "e" of "C" of (B) will give us this. An upmove from here nearer to 5700-5800 for a bull squeeze that may atleast correct the mood for start of bear market! This, if we get while S&P seems to have begun its south-bound journey would nicely complete the picture since we will have enough bullish comments on how the money flows are shifting eastwards.

 

What is required for confirmation? A strong break of 5400 (major trendline), 5177/96 recent major lows and 4750 (our last line in the sand). Chances of all these have certainly increased after the last weakness. Since in this setting, a major Pattern is ending at a lower high, the subsequent bearishness has to be sharp and witness much lower levels.

What is required for the renewed bull? A sharp move beyond 5900 and quickly enough to execute a double squeeze (twice below the major SHS neckline!) that confounds the bears.

What is required for more confusion? Further elongation of sideways movement action in a broad range, while we keep varying our labels ad nauseum. However this could eventually be bullish since the burden of correction is taken over by time instead of price!