Expanding Diagonals

   Till a few years ago, I used to think that expanding Diagonals are pretty rare. The fifth wave in the 2003-08 bull market in the Nifty from 2006 to 2008 was one such rare appearance. Then I found one developing in real time in 2017 from march onwards, but counted it finishing too early.

Nifty 2006-08 ED. No wave labels reqd.

2017 ED. still had miles to go.

Larger context of 2017 ED. It finally topped in January 18

    However, in recent times I am finding them all over the place or maybe I'm able to. It's a perfect foil to form as an impulse alternating in form as an adjacent wave to a regular impulse and simultaneously extend as well. The expanding diagonal basically allows differently sized waves to form a part of itself with full disregard to proportionality. This is generally a nightmare for wave counting. Worth noticing how the 'B" waves of the zigzag components of the ED keep increasing in size as well, contributing in no small part to to the potential counting errors.

  Here are some recent examples. Nifty from the march 2020 lows to the October 2021 highs has formed a zigzag, wave A of which was an impulse lasting all of 4 trading days only! Wave B was a running triangle followed by wave C which formed a superb expanding diagonal(ED), lasting 17 months.

    The fifth zigzag of this ED had as its C wave, another expanding diagonal (yellow lines in chart above). One has to choose an intraday chart to clearly show the miniscule waves 1 and 2. Talk about disproportionality. 

check out the last wave post triangle. Its also an ED

   After the October 21 top in the nifty at 18604, as the wave 2 corrective zigzag started, its wave 'A' formed a clear ED. The rare examples I have seen of a wave 1/A forming an ED has been in declining waves.

No Wave Labels. Self Explanatory

   In the US, the DJIA/S&P500 have from the 2009 lows have formed a zigzag whose wave C has a massive ED since 2011, which is on the verge of completion. Worth noticing here is the lower boundary is not defined by wave 4, but by the 'B' wave of the 5th zigzag. No rules/guidelines broken here. Par for the course. 

Wave labels not as per convention

   Finally, one of the myths I initially had was that wave 4 would necessarily overlap the territory of wave 1. While possible, not required as can be seen. 

DESCENDING TRIANGLES PREEMPT DOOM FOR THE INDIAN MARKETS

           In the last post we saw how the nifty has formed a running descending triangle and is on the verge of breaking down from it. In fact forming descending triangles during bear markets seem to be a speciality with the Indian markets since the 2008 top. 

       [A descending triangle constitutes a pattern where a series of lower highs alternate with a series of lows at the same level  therby forming a contracting pattern with a downward bias. Both an Elliott wave pattern as well as a traditional charting pattern, it is a well defined continuation pattern.]

         Check out the following.

          The 2008 decline manifested in two distinct phases, the Jan-March 08 decline and the September-October 08 decline. These two phases were separated by a classic descending triangle.

    

            As already shown in a previous blog, the 2011 bear market also formed a classic descending triangle on its way down.

     

          The March-June 2012 correction also sported a contracting triangle which is almost descending. 

   

           And now we have this.

       

          Please note that irrespective of the strength of the decline prior to the formation of the descending triangle, the breakdowns post the triangle have been quite furious (obviously in context of the size of whole bear market). In 2008 it was what one may call relentless and breathtaking. 2011 was also a torrid affair. No marks for guessing how I feel the current one will fold out.

SIMILARATIES GALORE BETWEEN 2011 AND NOW

        As shown in the previous blog (here), the 2011 bear market was wave C of the 50 month running triangle. It manifested as a double three, an expanded flat ( wave w), running descending triangle ( wave x), followed by a sharp zigzag down(wave y).

         The current supposed bear market starting from the 30th January 2015 top is expected to be wave C of an expected triangle or expanded flat.(see here). This wave would be two degrees higher than the 2011 bear market.

2011 Bear market

      There is an uncanny resemblance in the structure of this bear and the one in 2011. The structure from 30/01/2015 to 12/06/2015 appears to be a clear expanded flat with a well divided wave C. The structure post the flat has evolved into a potential running descending triangle, just about complete. If the count is same as 2011, what follows from here is the sharp zigzag 'y'.

       Remember wave Y from 25/07/2011 to 02/01/2012 formed the meat of the bearish action in that year. What happened till then was basic distribution. In fact I believe the following picture more correctly conveys the possible carnage as opposed to the above picture.

   
       It follows from the structure formed that the whole sideways consolidation that began since 2008 is likely to play out as a huge multi year running contracting triangle. The other alternate (an expanded flat..see here) is practically eliminated because a flat would demand a five wave impulse or at least a leading diagonal structure from the top of wave B. The current triangular formation since June 2015  eliminates these possibilities.

Structure since 2008 top

     
        The most remarkable point of the similar structure is that both waves are waves C in triangular formations. (albeit of different degree). If the count is correct and wave 'y' of wave C is about to commence, the next six months shall see a bloody bear market similar in scope to  September/October 2008. The first sign of such a move would be a break of the lower triangular boundary line currently at 7550. The distribution for such a move has  already taken place. This scenario goes well with our other cited  possibility of the eight year cycle.(see here).

      Remember while comparing the current wave with 2011 that this one is two degrees larger and in all likelihood, is an adjacent wave of he 2008 bear market.

THE 50 MONTH WAVE B RUNNING TRIANGLE IN THE NIFTY

             Its time for some wave counts of the past and today, we take an in depth look at the 2009-2013 consolidation in the Indian markets, which took the form of a running triangle. In the context of which I am counting long term waves, this wave was of intermediate degree and is wave (B) of a three wave advance. For exactness, wave (B) started on 12-6-2009 at 4693 and ended on 28-8-2013 at 5119.

(The label (X) in August 2013 in the chart should actually read (B). Too many labels.)

            Below is a close up of minor waves A and B of the triangle. Wave A was a simple zigzag and was completed in 31 days. Too most wavers, thus wave looks like a blip on the long term charts, but out of observation, running/expanding triangles can have insignificant looking 'A' waves. 

              

           (Wave A was one of those classic zigzags which had almost equal impulse components at 550 points vs 561 points as wave[a] and wave [c] and in which the wave [b] retraced exactly .618 of wave [a]. Thought such textbook zigzag waves weren't supposed to exist.)

              Wave B was a double zigzag with a five wave corrective wave [X] which was either a skewed triangle (triangle in which wave D exceeds wave B, without the triangle being expanding in nature) or a B-centric three wave structure (a three wave move in which the B wave subdivides significantly.)

             (Wave B's starting point was 3919 which multiplied with 1.618 gives 6340 which

 was 2 points of the 6338 unorthodox wave B high. Also the percentage gain made by the two individual zigzags of B was 3919 - 5182 i.e. 32.22% and 4786 - 6338 i.e. 32.42%, so the gains by the two impulsive portions of minor wave B are pretty much equal.

          Now consider the impulse from March 09 to June 09 which is the first impulsive portion of primary wave B i.e. two degrees larger than the wave B under consideration. It moved from 2539 - 4693 i. e. a 84.8% gain. This number is an almost exact 2.618 multiple of the above calculated 32.2-32.4% gains, waves of exact same nature, two degrees smaller. If the second impulsive portion of primary wave B was to adhere to this then it should peak at about 9350 9440.)

           Wave C manifested in the form of the 2011 bear market and was a double three, an expanded flat (wave W) with a running triangle as wave X followed by a zigzag (wave Y). The orthodox top of the previous wave B happened on 14th October 2010 at 6284 and the 5th November unorthodox high at 6338 turned out to be a wave 'b' high of an expanded flat.

            The triangle was again classic Elliott, a heavily retraced wave (C), a complex wave (D), a scary wave (E) (for the bears). Wave (E) topped at 5700 just within the bottom of wave W at 5690. This is however not mandatory as I have so cruelly learnt(later). Wave Y was the meat of the bear market, a classic zigzag whose wave C formed an ending diagonal with a truncated fifth wave.

         This now brings us to wave D, a huge simple zigzag. The rally from 4588 on 2nd Jan 2012 to 5629 on 22 Feb 2012 constituted wave A of D. This is followed by a three wave move to 4770 in June as a retest of the former lows thereby forming a heavily retraced wave. Wave C was a long ending diagonal which lasted a year. Wave 1 of the diagonal served as the crux of the bull market with the rest of the waves forming the distribution phase as is in an ending diagonal. Note that waves 1,3,5 of the diagonal were all clear and simple zigzags (Note a of 1 is a leading diagonal and hence c of 1 was an extended wave) while wave 2 was a double zigzag and wave 4 appears to be a triple zigzag.

     

         And  finally, wave E. Wave E's are likely to be scary affairs, and undoubtedly it was as the rupee collapsed from 61 to 68. It was here that I expected the wave to terminate some point below 4693 the starting point of the triangle in 2009, the notion being, ending of corrective waves have to lie some point within the wave being corrected as illustrated above in the triangle of wave C. A lesson hard learnt and remembered as the nifty reversed quickly without any accumulation. In running triangles wave E's don't need to end within the starting point of the triangle. Wave E was a double zigzag. 

         And thus formed intermediate wave B. Wave A a simple zigzag, C a double three with a complex wave (B), E a quick double zigzag, B a double zigzag also with a complex wave (B), D a simple zigzag with a heavy retracing wave (B),  the basic characteristics of an Elliott triangle, all zigzag natured waves with distinct alternations.

         The stage was set for intermediate wave C. The triangle target was around 7600, various other log calculations gave 8300  to 8500. Log equality to wave A gave targets in excess of 9400. So far nifty has peaked at 9117 and reversed.

NIFTY CYCLE UPDATE

         In March I discussed the three cycles that were operating in the Indian markets. Here is an update on how they have fared.

         First on the 70 day bottoming cycle, I made a mistake in assuming that it might not work anymore because it was coinciding with the 89 day top scheduled in the first week of March. It actually made an accurate bottom on the 26th of February which is 71 days from 17 December and then indicated the next bottom on 7th may which was pretty accurate as well. The next bottom was due on 16th July which is not clearly visible. So let that be for now.

        The 89 day topping cycle beautifully caught the 4th March top and then indicated a top on the 1st of June. This worked pretty well too as the nifty went into a free fall from 2nd of June after the RBI policy. This cycle now indicates a potential top on 29-31 August.
  
       The most important and cunning of all was the 160 day bottoming cycle. Counting from 17th December gave 26th may. Despite allowing for considerable leeway, this did not fit in and I felt that the most consistent and important cycle had disappeared. However recently I noticed that after 17th December, the market made a secondary bottom on 7th January before it really took off in rally mode. 156-160 days from 7th Jan gives 12-16 June. INCREDIBLE. The major bottom so far. Apparently the market has skipped the period between 27th December and 7th January, the very two bottoms which I had considered as sandwich bottoms in that post. If this is just a coincidence, fine. Just going one at a time here, the next 160 day bottom would appear somewhere around 20-24 November. Let's see what happens.

A VERY BEARISH PICTURE

       

   
       This is my first post on Elliott waves and I think its a deadly one at that. The picture shows the Indian markets from the 2008 highs to the 2009 lows and then to the current 2015 highs. 

        The move from the march 2009 lows till date is a clear ABC ZigZag with a running contracting triangle as wave B. The contracting triangle is a large wave (50 months, from June 09 to August 13). Its as clear and crisp as can be and it satisfies all the guidelines of an Elliot triangle.

        According to Elliott, a triangle occurs either as wave B of a ABC move or as a fourth wave of a five wave impulse. What this implies is the triangle is the penultimate wave in a particular sequence of waves or more specifically put, the breakout following the triangle will be completely retraced. (and some maybe)

        In the current case of the nifty, five waves from the august 13 lows have been completed. This could then be a very important top that won't be taken out too soon.

        Digging deeper, assuming the 2008 fall is wave ((A)), then the move from March 2009 to March 2015 (if complete), forms wave ((B)), creating new all time highs. It then follows that the whole correction post the January 2008  high is either forming an expanded flat or a contracting/expanding triangle with wave ((C)) of the pattern due next. In case of the contracting triangle we would see a three wave move that falls short of the 2008 lows. Something in the range of 3000-4000 maybe. In case of the flat, we would see the 2008 lows being met or even crossed by a five wave downward move.

Expanded Flat

         Combining this pattern formation with the eight year cycle bottom due in Indian markets in 2016 (here),  this indeed is A VERY BEARISH PICTURE.  EXTENT WISE THIS BEAR MARKET COULD MATCH OR EVEN EXCEED THE 2008 BEAR MARKET.

So anybody up for the eight year cycle in the Indian Markets?

     The three major bear markets that have hit Indian markets in the last 3 decades shaved off approximately 60% of the main indices each time and occurred in 1992, 2000 and 2008. This eight year interval may sound like a coincidence, but maybe it isn't.  Maybe its a cycle.  If so, then its time to prepare for another 60% cut !

    All bear markets had their reasons. 1992 saw the Harshad Mehta scam, 2000 saw the internet bubble bursting as well as the  Ketan Parekh scam,  2008 the global financial crisis.  Bear markets of such magnitude always need a reason for the rationalists to discuss and debate. What most people don't realize is that nature has its own tidal rhythm.

     I don't hear anyone talk of the occurrence of this cycle and hence am inclined to believe that it might have one more go.
  
       Indian markets are stalling and fatigued and probably on the cusp of starting an intermediate downtrend. I believe the downside potential is huge.

        I shall talk more about such long term cycles in some future blog. Till then my sincere advice to all for the next 15-18 months.... Exitsville.