Covid 2nd wave Risk Discussed

Today it's time for introspection. I was not shaken on the larger degree wave count, but should I be worried? Lets look around. Start with the Dow or DJI, 5 waves up and now corrective in A-B-C, now if we use a channel instead of converging lines the next support is at 26258. 

We already saw these patterns in Asia first as published in the LSR for Malaysia among others. 5 up and since then we are in correction and it could not rally to new highs despite a rally in the world market. Now will wave C down go still lower? Yes it can look like an H&S with wave B in the right shoulder. Wave C need not go as far as shown here it can end earlier.

Europe finally joined in after showing signs that it could hold its own. It looks like a H&S pattern, the neckline broke and we are heading lower till wave C completes 5 waves down.

The important takeaway from these charts is that we have an impulse wave up from the March bottom, so any correction is a correction of an uptrend that started in March 2020. These 5 waves up are the 1st wave of a larger degree uptrend and the A-B-C decline is the 2nd wave down. See the marking on the first chart of the Dow, it applies to all.

The question then is why should the Nifty not follow the same path with a lag as shown below? If true then we are only in wave A down. The only thing that will prevent this is that the second wave of Covid does not develop in India as in the rest of the world. Looking at charts of stocks I do not expect this to be the case for India, meaning that stock charts do not reflect the risk of a second wave. All the other global charts above are already in wave C down that will end in a few days. Nifty may end the current decline in a smaller a-b-c with world markets as well.

Now let us see why India is lagging the world in the A-B-C structure and if there could be serious risk in the future. If you listen to me regularly on the podcast you will remember this. I stated many a time, data is lagging behind in India relative to the US/Europe. The US first started to report a fast increment in cases, India a month later. The US peaked in the daily case counts first in August, India a month later. So if the world is exploding in cases today, India may do so a month later? It is a serious risk based on the data pattern unless we fake the data somehow by stopping active testing. The chart below shows what I am saying visually. In fact in Sept when markets were down I said that our cases will peak out a month later. Now the opposite risk is on the table.

So Nifty may fall in wave A after the 5 wave decline in sympathy with the world, but a C wave down would happen only after our own daily cases start to rise and explode higher as in the rest of the world. This is a risk to watch out for. If this by some miracle does not happen then we are saved and there will not be a Wave C decline in the months ahead. Now I know this could be my imagination, there are many places like Africa, Japan, and Brazil that are not seeing the second wave of infections but Europe and Russia is. Some like Argentina or Lebanon have not yet peaked. In short, each region can have its own trend and we cannot draw a correlation as above. That also does not mean we can sleep over the risk as we head into a festive season. In the short term, the global market trends and reactions will play a larger role in defining the trend for Nifty, after that we need to keep an eye on the risk of a second wave for more. One thing is clear Nifty also has a 5 wave advance which means long-term bullish. The correction is a correction to the 5 wave up move and that is all. We are not going back to 7500 so forget that. How far down we will have to figure out along the way and I will draw estimates later. As of now we can test 11550 as already discussed in Nifty daily reports is all we can say.

USDINR

USDINR has met my expectation, touching the top end of the rising channel at 74.25. Now it is time to see if we get a trend reversal from here. Wave B should complete and wave C down should start soon.

Highest Dollar / Nifty Correlation seen

The dollar index and nifty historically have never had as strong correlation as they have had since March 2020. Thus, every time there is a slight bump up in the dollar index nifty tends to correct or pullback at the same time. Last night the dollar surpassed 94 making a case for a further move higher towards 95.3 or more. This puts some short-term risk on the table. Of course historically there have been also periods where the 2 have diverged from each other but not in the recent past. We might need to watch this closely for the next couple of days. The degree of pullback completely depends on where the nifty is within its larger wave structure, if we get a clear signal that the market is heading up when we can ignore such factors. As of now this keeps us on our toes.

Dow Jones

Last week I published this A-B-C down chart for the Dow, the level is reached and we had a positive close from the support. Is it done then? Do we resume a rally, and if yes then what does it tell us about next weeks event?