Before i get into explaining the above chart i would like to mention the simplest of all theories in technical analysis which is called as Dow theory and is the base of all other ones. Search google for more on it.
As per the simplest tenets of the theory a higher top and higher bottom formation confirms an uptrend and continues to remain till we dont see a lower top lower bottom formation.
In the chart on the left side have shown a formation of a simple trend change as per dow theory. Another thing which i have been fascinated about is fractal analysis which might be what am showing a similar pattern repeated not though in magnitude but there is some repetitiveness.
The 1-2-3-4 pattern if u see has been followed forever and this is how the index has been behaving. We have never seen consecutive 3 higher tops and whenever such a thing has happened the next we see is a good enough dip.
We almost saw a change out of it when we dint break 7700 in the last dip but still there is nothing bullish till we start making a 1-2-3 formation.
If Sensex crosses 9700 and makes a top anywhere between 9700-10500 the most important thing to note would be the next retracement and how it pulls back. Whether that move is able to break the repetitive bearish pattern. Mind you on time analysis front we did break the 10-12 weeks or 50 odd sessions and a new low pattern.
So we are seeing a slight deviation from the strong bearish patterns so its a crucial point whether there is one dip to previous lows left or is Sensex going to turn its head around and start looking upwards.
This should be clear in next few months and we will look for a higher top higher bottom ( 1-2-3 trend change ) to confirm a simple change of trend.
This is just a simplified way of looking at things and a rough description which may be a direction guide in months to come. We may look into a time analysis approach in the weekend ( impulse and reaction — we may compare impulses and reactions like 9700 -8047 and 8047 to 9700 etc etc )
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