Elliott is not just about differentiating a three wave corrective from a five wave impulsive, but also seeing the big picture. The more degrees (intermediate, primary, cycle) you can see at a time, the better you can understand where we are placed on the larger picture.

What is a three wave structure? As the name suggests, three wave structures have three legs which can be labeled as a-b-c or as w-x-y. These structures can be overlapping, sideways, gapping, time consuming and non-trending. These structures are also called as correctives another name for a counter trend correction. The hallmark of a corrective structure is that pinpointing a top becomes tough. This is the case for the Indian Sensex now. Another characterstic that is used to differentiate a three from a five wave structure is the ‘right look’. A five wave is a clear structure which the three wave structures lack.

Countertrend structures can be pointing up. Calling a move up as a countertrend challenges conventional belief that countertrend corrections can only be down, just like trends can only be up. The ability to see a counter trend up is not easy for a technician. Even if one is a seasoned analyst, it needs more than experience and bias control to call or label a move up as a counter trend. There are already few Elliotticians in the world and only a few of this few have the insight and expertise to call a move up as countertrend. Just to reinforce my point, there are a few in the world today that can call the Sensex, Nifty, Dow, S&P move up from Mar 2009 low as a three wave structure and not a five wave structure.

How can something that has move up 100% or 50% be a countertrend? Now this is where we come to the second aspect of integrating the big picture. If a technician looks at a trend from Mar 2009 low, then he(she) sees only one thing, a clear trend up. The moment we add more price history from Sep 2001, the Mar 2009 leg gets smaller. Now the March 2009 leg up looks like a market struggling to recover what it lost from all time highs in Jan 2008 to Oct 2008. Add another 10 years to the whole picture and what happened from Mar 2009 starts to look smaller and relatively less significant. It's all about zooming out. The more you zoom out, the better the big picture gets.

Now that we have the large picture in place we can rethink about the move up. Is the Mar 2009 up move a trend or a counter trend? Does the move up look like a clear five, strong, volume backed, exponential structure or does it look overlapping, sideways, gapping, time consuming and non-trending? The larger the data you view, the clearer it gets that the trend does not start at 18000 to 20,000 but only after it breaks the all time high at 21,000. It's merely the zoom out effect.

Assuming the few of the few may not be wrong. What does it mean for the market? Does it mean market cannot make a new high? Now this is where the interesting part is. Even if the move up is a countertrend market could still make a new high. We have illustrated here two potential scenarios. One that the final fifth primary has already begun and we are in a 3-3-3-3-3 terminal pattern or secondly we are in still in a large 4 primary which could see prices back to 12,500-13,000 levels followed by the final fifth which could be a 3-3-3-3-3 or 1-2-3-4-5.

Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research