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Elliot Wave Anlysis (Dated 22/09/2008)

Drop from ‘e’ (at 15107) appeared like a 3rd extension Impulse on intra-day charts. Impulses do not get retraced by more than 61.8%. Also the 3rd extension impulse should find it difficult to retrace beyond 2nd wave of this Impulse (which is at 14046-14433).At the same time the impulses in the 5th wave or c-wave positions do get fully retraced. A move sustaining beyond 61.8% correction level, i.e. above 14133-225 area, would, therefore, indicate that we are dealing with such a situation.

From this perspective, it would be pertinent to note that the current drop (from 15107 to 12558) achieved 161.8% ratio to the previous one (from 15580 to 14002). Such an event suggests some alternatives.They show that a-b-c formation from 15580 to 12558 could either be a-b-c of a Running Expanding Triangle, or “b” of Flat from 12514 (with its “a” at 15580).

If it is Expanding Triangle, then the current rally can go beyond 61.8% up to 15107 as “d” of ET, but may not cross 15107. Note that current “d” (if true) has become larger than “b”, and has overlapped with “b” as required within an Expanding Triangle.If it is “b” leg of Flat from 12514, then the current rally would be “c” of such a Flat, and could go beyond 15107, perhaps forming as a Terminal hereafter. The “a” of such Flat (if true) is from 12514 to 15580, and “b” was from 15580 to 12558.

The neckline joining 13727 and 14002, with the structure post-12514 appearing like a Head and Shoulders formation. A strong break below 14K breaks the neckline of this traditional H&S formation. This Neckline is now getting tested at around 14225. Sustaining above the Neckline cancels the assumption of H&S formation.

 The current bear market rally would be the “b” leg of the second corrective, which I said, can occur despite the fact that the market remains open for a protracted bear phase as per the 8-year cycle.

As per the Wave logic, corrective phases should consume more time than the wave getting corrected. Corrective phase consuming lesser time is allowed only in Triangle / Terminal / Diametric, which are exceptions to virtually all rules. In our case, it would indicate 2nd corrective (post-17054) developing as an Extracting Triangle or Diametric.