Elliott Waves warned against following the Polaris news

(Please read important update at the end of this post)

Ever so often, Elliott Waves helps the investor from making mistakes. For example, when I read the news that Rakesh Jhunjhunwala, the ace investor,had increased his position in Polaris, I decided to see what Elliott Waves had to say. Sure enough, it warned against following the Badshah this time.

Many investors don’t even read the news fully. Here are the headlines, and the final paragraph from the Economic Times.

Polaris rallies after news that Mr Jhunjhunwala upped his stake
Polaris rallies after news that Mr Jhunjhunwala upped his stake

The additional investment was made in Q3 of 2014
The additional investment was made in Q3 of 2014

Maybe I am reading this news all wrong, and he actually made fresh investments just the previous day! But it was essential to see what Elliott Wave analysis would say. Here are a couple of charts.

Polaris Consulting completed a 5-wave rally
Polaris Consulting completed a 5-wave rally

As you can see from the Elliott Wave chart above, Polaris Consulting has already completed a five wave rally near the highs, and the fifth wave was 38.2% of the distance from point ‘0’ to point ‘3’. Many of you are familiar with this approach to anticipating where a fifth wave will end. I have also explained this in detail in my Elliott Wave book, ‘Five Waves to Financial Freedom“.

The next Elliott Wave chart shows how the correction is unfolding. As you know, once a five wave upmove is completed, we will get a three wave correction. And the most powerful of the three waves down will be the ‘C’ Wave. It is clear that Polaris is in the middle of such a ‘C’ wave.

Polaris Consulting in C Wave
Polaris Consulting in C Wave

It is also useful to look at some Fibonacci retracements as shown in the next Elliott Wave chart. You can see that Polaris had paused briefly at a couple of prior Fibonacci retracement levels on the way down, but clearly, it shouldn’t appeal to any Elliott Wave trader to be blindly following the Polaris News.

Fibonacci Retracements in Polaris Consulting
Fibonacci Retracements in Polaris Consulting

IMPORTANT UPDATE:23 Jan 2014: I have heard back from some WaveTimes members that I have not taken into account the fact that Polaris has demerged with “Intellect Design Arena”, and that stock has its own value, and hence it is incorrect to say that investors in Polaris who purchased the stock in the last two days have made a mistake. I am indeed guilty of not knowing this development. However, I did take care to check if there was any news about Polaris that caused it to reverse exactly one day after the news I referred to above. There wasn’t! This merger has been in the news much earlier. The stock has simply adjusted lower today. This should give us pause to think about a company that has a stock split.The chart of a stock that has been split is immediately adjusted historically. But in the case of a demerger, where a portion of the company is separated, how do we treat that stock? What is the value of the demerged entity 1 year ago, 2 years ago? If you know the answer, please post in the comments area.



5 Comments

  • Prabh

    Hi Sir,

    To me it seems there seems to be an issue on the data quality for Polaris Software.Stock has made a high of 278 on 23-09-2014 whereas thats not depicted on your chart.

  • Rajeev Juneja

    Dear Ramki : The last para does put us all in deep thought. Though I seek your kind assistance in something different. I was seeing the graph of Polaris from Oct 2012 to May 2013 : what kind of wave structure can we define this time length. I mean its a flat correction lasting so many years or something else. Wud appreciate some guidance from you.

  • Crystal

    Dear Mr. Ramki,

    We miss you. Hope you are very well. You should post more often. Once in a month. perhaps?

    • Hi Crystal, Thank you so much for writing. Yes, I am guilty of not writing often. It is just that I have been very busy at work. But promise, I will try to be more visible in future

      • shiva

        Sir, just now saw in bse charts and the all mentioned levels are accurately achevied , wave C paused at 138.2% fb retrace and finally hit 161.8% retracement. Great.

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