Investing in Hindalco at the right time using Elliott Waves

There have been persistent requests from my readers in India for articles on how to use Elliott Waves to invest in Indian stocks, and this post looks at Hindalco. Let us start from the February 2016 low of 58.80. A lot of traders would have been reluctant to buy Hindalco when it was falling like nobody’s business. But in the short span of six months, Hindalco has already reached the 150 level, returning 150%. Such spectacular returns go only to the astute investor, who lies patiently in wait for the right opportunity and goes in aggressively.

The careful investor

You don’t always have to be picking the bottoms to make money. You could have invested in Hindalco at the right time using Elliott Waves at many junctures on the way up. In my book ‘Five waves to Financial Freedom” , I have discussed the concept of reflex point. Once Hindalco went past the reflex point in a five wave move, the careful Elliott Wave investor would have watched the stock on a daily basis to see when he could join in the upcoming third wave. The first chart below shows the reflex point as well as the five wave rally that took it past that point.
A five wave rally past the reflex point

You can see from the above chart that wave 2 was brief, falling only slightly below the 38.2% retracement level. When the explosive rush to the upside happened with a gap and an expansion in volume, you would have immediately committed some funds. That is because you now know that wave 3 is very likely underway.

Buying in the midst of a third wave

I teach many strategies for real-time trading in my seminars and workshops. Today, you get a snippet. Read this post as well as the one below (Walldan Group Inc analysis) and you will see what I am hinting at. The following two charts suggest that Hindalco could have potentially reached the end of an extended third wave. Mark my choice of words! I try to remind myself everyday that no matter how smart I think I am, the market is determined to show me my place! Also bear in mind that we can never be sure where an extension will finish!

Hindalco reaches a possible top wave top

Here are the internal waves of Hindalco’s third wave to support my hypothesis.

Hindalco's internal waves of its third wave
Minor fourth wave

Finding out Hindalco’s minor fifth wave target

As you know from FWTFF book, you can anticipate where the fifth wave will finish by measuring the distance from point 0 to point 3, and then computing some Fibonacci ratios of that. Here you can see that Hindalco’s minor fifth wave finished exactly at the 38.2% measure of 0-3. Not bad at all!

Computing a wave 5 target

Using the guideline of alternation to your advantage

One of the advantages of learning Elliott Waves is you can anticipate the level of difficulty in an upcoming move by looking at what happened earlier. Since Wave 2 was a simple correction, we should expect wave 4 to be complex. This is as per the guideline of alternation. You will see this explained well in FWTFF book. The key point with respect to Hindalco is we should be patient now for a proper dip to at least the 38.2% levels. While we are waiting, there could be a brief period of a price over throw to around 155.50. Let that pass! If you are like me, you will rather miss a move than trying to chase a rally that is potentially near its end. This is different from jumping on to a running train as it is leaving the station.That analogy is for joining a wave 3 in its early stages.

Wait for a wave 4 correction in Hindalco

How high can Hindalco’s fifth wave go?

Well, once you have purchased Hindalco on a wave 4 dip, you can do some calculations yourself. This calculation is no different from what you did earlier for the minor wave 5 of the third wave! But because wave 3 was extended, there is also a chance that wave 5 could become equal to wave 1. These are all explained in FWTFF book in detail. So maybe you should give it another read! Enjoy.


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shanghai stock index 27 March 2012

Shanghai Stock Index Update

On 18 March I posted a rather lengthy discussion about HOW we should wait for a particular sweet spot which offers a low risk buy level. I used the Shanghai Stock Index as my example, and made the following points.
shanghai stock index 27 March 2012
“If we now get a move above the reflex point in five waves, then we can be more confident of buying (in stages) from a 50% correction because any subsequent rally will be a third wave in the progression. This is ‘how’ we should really be using Elliott Waves. To plan ahead, and be aware of when the odds shift in our favor. The right plan and an ample supply of patience to wait for those sweet spots will reward you handsomely”.

The Key point above was a requirement to move past the reflex point to confirm the recovery was indeed an impulse wave worth risking money. Once the reflex point was crossed, we will still wait patiently for a 50% correction before buying. This was the plan. In the meanwhile, we came with up tentative labels that will alert us should something go wrong. So I proposed calling the first move up as wave 1, and said that we should not come below that level.

Guess what! The index has closed below the top of wave 1, effectively sending all the bulls to McDonald’s to become a value meal. Because we are using Elliott Waves the way it should be, we managed to neatly sidestep the whole chop, ie we avoided the bull trap. Even if you have only been a spectator, the lesson is very valuable. The scenario we just witnessed in Shanghai could happen in any other instrument and in any other market! From that point of view, what you have seen here is a lesson in real time. Enjoy!

Oh, do I hear someone asking what is the outlook from here. Well, once again, there is no question of playing from the long side until we know a bottom is in place. We could get a mild recovery from the 2230 levels, but then again, as a WaveTimes reader you don’t want to be playing that move because we need to see a 5 wave decline finish first before even considering whether we should buy at all. Alternately, we should see a massive rally higher that will take out wave (1) around 2380 directly, and I doubt this second scenario will happen immediately. Lets see.


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Jai Ho! Nifty reached 4800!

Jai Ho! Nifty reaches 4800! (Thanks to Vidhan for the catchy comment) This is a moment of elation for all those who believe in Elliott Wave Analysis, and how one can use it to profitably trade the financial markets. I think I did 5 posts in all about the Nifty, starting with this one: Dec 14, 2010 update and then pin pointed that once we break below 6069, we are all set. See this link.. If you really benefitted from these examples, maybe you can tell as many of your friends as possible about Wave Times. I really believe that by sharing what we have, especially if it is information and knowledge, we are doing our bit to make this world a better place. Best wishes, and to all my Indian friends, Jai Ho!

TCS stock revisited

I realize that some of you are wondering about what I think about TCS now that we have rallied to a new high this year. Recall that I was talking of a significant downmove in this stock. However, I wouldn’t be surprised if you didn’t remember that my call was more of a medium term in nature. Unlike in DLF, where although I was pointing to the south and it went up instead, in the case of TCS I continue to suggest that we will see a move down to around 835 in the next 12 months. The reason is quite simply that we are in the final stages of an extended fifth wave, probably in the fifth of the fifth, so it is just a matter of time before the bulls will suffer from exhaustion. So if you are an investor, you should prefer to take profits on most of your holdings of this stock, and wait for a more reasonable level to buy it back. Update on 29 August 2019: If you love my book FWTFF, then you will love my online course even more! That course will take your understanding of Elliott Waves to a whole new level, because it teaches you how to APPLY what you learn in my book to actually make profits in the markets. Here is the link: https://elliottwaves.com

Elliott Wave outlook for BP (Energy Company)

Today I came across a report where an analyst was calling for BP to reach 730 pence from its current level of around 575.50. However, from an Elliott Wave perspective, the outlook for BP doesn’t look so rosy. I am of the view that we are headed a lot lower. Take a look at these two charts. The first chart on BP shows that wave 3 was extended, being 3.618 times wave 1. We also see that wave 4 was an irregular correction, which follows the elliott guideline of alternation. The 2nd chart confirms that the 5-wave progression was finished around 722 and so a full-blown correction was due anyway. Wave A of the anticipated 3-step correction was finished and we also got a wave B before the oil spill news hit the market. So we have probably embarked on wave C which has targets at 310.

Updt: 7 May 2010: Someone asked me a question about the 5-year time frame for the correction. Remember, that time runs from the top of wave 5 (at 722) and not just for wave C. As that top was posted in early 2006, the correction will last at least till early 2011.

Update on 29 August 2019:

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