THE DAILY WAVE ANALYST

22nd May 2001.

Our markets displayed remarkable maturity in the past week. In spite of the SEBI ruling being distasteful to most, it was taken in the right spirit. The sensex hit a low of 3420.14 and recovered thereafter to touch a high of 3700.88. There has been another narrow movement in the upper range for the past few days.

The short-term up trend that was in place since the low of 3357 (27-04-01) was negated when the sensex hit a low of 3420 in the past week. Though the sensex touched a high of 3700 last Friday; it was unable to sustain at this level. So the resistance around the 3650 level is still not surpassed effectively enough.

The rally from 3097 (16-04-01) is now more than a month old and qualifies as an intermediate term uptrend. This rally will not be seriously threatened unless there is a fall below 3300. The medium term trend is sideways as the sensex is largely confined to the range between 3300 and 3650. There are two ways in which we can interpret this sideways movement.

This range could either be the second wave of the rally from 3097 or it could be the terminal flat pattern of the upward move from 3097.

If we assume the first count to be right, then the low of 3420 could be the beginning of the third wave upward that can take the sensex to 3762, 3974 or 4316. The caveat is that there should not be a fall below 3420 if this count is to stay in place.

If the second count is correct, then the high of 3701 (18-05-01) could be the end of the rally from 3097 and the sensex could now launch in to a downward move that can drag it to 3300 or even below.

Since the long-term trend continues to be down, caution should never be discarded with long positions. We keep reiterating that inability to cross the 3650 level effectively means the sensex could test its previous low of 3097 once more before a sustained up trend follows. Over the last one year we have seen the sensex make a sharp upward movement, followed by prolonged sideways movement before finally crashing to a new low.

The classic trend following methods advocate bullishness. But as per our E-wave count, there is a possibility of the end of the rally from 3097 at 3701. Inability to rise above 3700 in the next few days will mean that partial profits need to be booked on trading positions and to ensure that stop loss levels are in place for all trading long positions.