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Chart of the Week
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Chart of the Week
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Though conventionally momentum is understood as an oscillator that defines overbought and oversold condition, momentum can also be defined as a detrending cycle calculated on an asset price. When the cycle is up, prices are strong and vice versa. When the cycle reaches an extreme high, it’s an overbought situation and vice versa. Interpreting gets tricky because asset performance can be different for different degrees of time i.e. the trend for different degrees of time can be different. On a daily time frame performance of an asset could be overbought and ready to reverse. On a weekly time frame performance could still be positive and have no signs of reversal. On a monthly time frame performance price may have not have completed a 24 month bear market yet. While on a quarterly time frame the asset might be already in a major multi decade bull market.
How can this happen? This does happen. And this is what ROC momentum is suggesting on Indian Nifty. On daily it’s suggesting 5,750 as high potential resistance reversal, on weekly ROC is still positive and does not confirm the daily view that 5,750 would really be a serious resistance, monthly ROC is still negative from the 24 month bear market and still below zero line (which is conventionally interpreted as the first sign of change of trend), while quarterly ROC momentum never fell below zero after 2004 low. According to the quarterly ROC Indian markets never entered a cycle degree bear. So what is the problem? The problem is that momentum does not harness different degrees of time in one common indicator. There are special indicators like Pring’s KST that attempt to harness multiple degrees of time. Maybe this is why it’s called Know Sure Thing (KST). We need more indicators like KST because a trader does not want to look for a reversal based on daily at 5,750 and get whipsawed by a move up to 5,800 or 6,000.
Another way to create a momentum indicator is to understand whether an asset is overbought and oversold in a group. We ranked Nifty in a group of 1000 assets and we ranked it’s performance on a scale of 1 to 100 for three time frames viz. weekly, monthly and quarterly. We got the Jiseki cycles for nifty. Jiseki also studies performance, but unlike conventional momentum it looks at relative momentum in a group. This is how Jiseki harnesses various degrees of time. The grey mode is when all three time degrees have positive momentum and the sandy colored mode is when the momentum for Nifty is negative. We don’t have a grey mode yet and this is why Jiseki momentum is suggesting a potential reversal before anything on Nifty. Prices are at previous highs. We think a multi week reversal is near. March is known for reversals. Let’s see how our positive Elliott view reconciles with our Jiseki momentum view in months ahead. 
Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research |
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Chart of the Week
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This is what we said on 13 Apr 2011
Citi has become one of the worst performers (among Global 1000) of the last 24 month bull rally, it deserves another look. Our Jiseki performance rankings suggest that Citi is still among the bottom 20 percentile of performance over a quarter. Though the Jiseki cycles are not yet positive RSI support at 40 suggest that any fall in the stock should see buying support coming in. When a financial major suggests accumulation on an intermediate degree, it means that we are still in a continued bull market and any dip down should be intermediate in nature. We have illustrated both the Dow and Citi charts in the case here. Interpreting Citi price structure is the challenge, the Citi itself, never lies.
If the markets are connected, one should be able to understand the market structure by looking at a market component. Putting simply this means the market structure of a specific sector should suggest the direction of the broad market. Was this not the similar thought which Charles Dow mentioned in the Dow Theory? How different is the DOW Theory approach where we could (can) understand the DOW Industrials by looking at the DOW transports from understand the state of the bull market by studying a few financial majors.
Today we look at another two London financial majors, Barclays and Aviva. We also have revisited CITI. And guess what? Though CITI is 20% lower from where we left it in April, it still is above 0.618 Fibonacci retracement levels from 2009 lows. 
Barclays has also moved back above 0.618 Fibonacci levels and is ready to test a multiyear trendline resistance. A break above 250 would confirm positivity. If these correctives look unclear and dirty, we have Aviva with a clear corrective a-b-c structure and 0,618 Fibonacci support. Even if we are looking at a large complex corrective, above 300 the price structure suggests higher. Now when three top financials fail the break previous lows and show resilience how can we ignore the Bull. And before we rest our case, let’s not forget to review Jiseki cycles for BARCLAYS and AVIVA. The cycles are bottoming and positive. 
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Chart of the Week
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If the most important indicator in measuring and weighing market structure is price confirmation then there is nothing more important than a positive price breakout. Whether we have had the Jan effect (the first 5 day positive price effect) or not, the monthly close is suggesting some conspicuous price confirmations. As Indices around the world are breaking some significant true trendlines. For example the DOW 30. It has broken a significant true trendline of five years.
Did you know that DOW is barely 7% from an all time high, which it has not distinctly broken in 12 years. The basic rule of market structure suggests that the more a resistance is tested, the more likely it’s to break. Any 7% upside gives DOW a chance to test the 12 year resistance. How large is a 7% move?
This is what seems to happen now. This can of course be a false breakout. But how many false breakouts do you need? World Index, Russell 1000 broad index, Nasdaq 100, ISE home builders, Dow transports, and IYE real estate. True trendline breaks are all over the place. We need a failure across the board for the various sector indices to fail here and markets to come down. Well like I said, the bears are asking the bulls for the price confirmation or “show me the money”. Unfortunately “money” (price confirmation) is staring the bears in their face suggesting them to review their stand.
From the Indian perspective, the price confirmations are absent. You can’t expect India to lead everything. The whole idea of leadership is cyclical. Assets outperform and underperform their global peers cyclically. It’s time for India to lag hence no price confirmation. But if you observe closely all of CNXIT, BSE500, Sensex, CNX100, BSEAUTO, BSEPOWER are testing multi month resistances. A break would set the Indian Bull free to perform in 2012 (despite the odds). At the end of the day a few months or a 12 month Bull can happen in a large 90 year bottoming cycle. 
Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research |
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Chart of the Week
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NIFTY historical high is a contrarian call. Why do we think NIFTY 8000 is likely? A few reasons, first, price confirmation is the most important indicator.Since the current bear is already primary multi month in nature, we would let prices break the NIFTY 4,500-4000 support zones before looking at the extension of the current bear market. Second, most sector indices monthly momentum (ROC) is not only oversold but also over reactive. This suggests bottoming price structure for most sector indices. Third, the current bear market can be measured for time and price retracement. Did we have enough time and price retracement? From the October 2008 low till Jan 2012 we have completed 39 months. The 40 month Kitchin Cycle is the most conspicuous in stock markets and the best part is that it is almost complete. So prices have retraced in time. In terms of price we are hitting key Fibonacci retracements. 
From an Elliott perspective, our ongoing preferred is a running flat, which could bottom near Nifty 4,500-4,000 levels. Running flats happen in strong markets. And if this is the IV cycle wave with a pending V cycle wave up, 38.2% and 50% Fibonacci retracements could complete the formation. If this preferred view is correct we are in for a move to NIFTY 8,000. 
If this sounds unrealistic, let's look at the DOW JONES bear market of 1990's and its similarity to the Indian case. First the 1987 crash, a recovery back to 1987 high, a crash again in a flat like formation, followed by a secular multiyear bull run. Nifty’s crash in 2008, recovery back to previous highs and then a crash again, a flat like structure. Any low now would suggest that the multi years trading range is complete and we are in for a multiyear recovery. 
Our anticipated cases from 20 Sep 2010 also seem complete. (The Primary Corrective) 
Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research |
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Chart of the Week
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Technical analysis is about weight of evidence. More the indicators pointing in the negative side, the more negative the market and vice versa. Technical analysis is about Intermarket. Everything is connected. This means if we look at the CEE (Central and Eastern European) market, we should get some cues where Europe is headed and also get Q1 2012 cues regarding the global equity bias.
Here we are looking at Hungarian BUX, which seems to have completed a five wave impulse up and a three wave corrective down.
Now an Elliottician might contest or confirm this count. While the Intermarket analysts might say, “Look at the Romanian BETFI, which has a similar count like Hungarian BUX but an unclear five wave up.” And if Intermarket is true one of the counts is write either the Hungarian BUX or the Romanian BETFI. One of them is going to decide whether market attempts a low below 2009 or starts a new leg higher into 2012. 
There is another reason, which Elliotticians can give. A cycle degree can bottom with a three wave structure and may not need a five wave structure. This is why Romanian markets could bottom with a three wave rather than a five wave structure. This means that whether it's Mar 2012 or Dec 2011, the Romanian Equity could be ready to move higher in a new impulse up. 
Now if we have to confuse the Elliottician we can show him the price chart of Austrian ATX, Polish WIG and the CEE Index, a composite of all CEE indices. Now the aim is not to confuse the Elliottician, but to remind him that there is subjectivity in counting waves even if Intermarket support is assumed. Orpheus Jiseki on the other hand is a basic indicator which illustrates where the Hungarian BUX and Romanian BETFI or CEE indices are on the larger performance scale, in the top, in the bottom, in the middle. If there are on the top, no Elliott wave positive counting would help and if there are at the bottom, even the most negative counts on Elliott might not take the respective indices lower. The Jiseki is a performance time cycle for an asset and a valuable tool to fine-tune Elliott and Intermarket cases.
The CEE Index Jiseki is already at the worst ruling at sub 20 percentile readings. This suggests that the despite all negativity in Europe at least parts of CEE region is already at its worst and to expect consistent selling pressure to take markets secularly lower in 2012 might be a tough task for bears. The odds are favoring the value pickers and bulls. If we look at things separately, the Austrian ATX (outside CEE) is still at 55 and has no reversal signs. Romanian BETXT (top 25) is sub 30 suggesting relative value. A whole new Intermarket case can be made from Jiseki, to understand Intermarket cases, whether Long German DAX short Sensex is workable or is Sensex Ready to outperform CEE and EU region Indices. 
Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research |
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